If you’re facing financial difficulties in Minneapolis and considering bankruptcy, you’re probably wondering: “Will I lose my car?” This is one of the most common and important questions people ask before filing. Your vehicle isn’t just a convenience—it’s essential for getting to work, taking care of your family, and maintaining your daily life.
The good news is that in most cases, you can keep your car when filing bankruptcy in Minneapolis. However, whether you’ll be able to keep your vehicle depends on several important factors, including the type of bankruptcy you file, how much equity you have in your car, and your current payment status.
This comprehensive guide will help you understand Minnesota’s vehicle exemption laws and how to protect your car during the bankruptcy process.
Understanding Minnesota’s Motor Vehicle Exemption Laws
Minnesota law provides specific protections for people filing bankruptcy, including exemptions that allow you to keep essential property like your vehicle. Understanding these exemption laws is crucial to protecting your car.
How Much Vehicle Equity Can You Protect?
As of 2025, Minnesota law allows bankruptcy filers to exempt up to $5,600 in vehicle equity for individual filers. If you’re married and filing jointly, you can protect up to $11,200 in combined vehicle equity.
This exemption is outlined in Minnesota Statutes Section 550.37, Subdivision 12(a), and it’s specifically designed to ensure that people going through bankruptcy can maintain reliable transportation.
What Is Vehicle Equity and How Do You Calculate It?
Vehicle equity is the difference between your car’s current fair market value and the amount you still owe on any car loans or liens. Here’s the simple formula:
Vehicle Equity = Current Fair Market Value – Outstanding Loan Balance
Example Calculation:
- Your car’s current market value: $10,000
- Outstanding auto loan balance: $6,500
- Your vehicle equity: $3,500
In this example, since $3,500 is well below Minnesota’s $5,600 exemption limit, your car would be fully protected in a Chapter 7 bankruptcy.
What If You Own Your Car Outright?
If you own your vehicle free and clear with no loans, your equity equals the car’s full market value. As long as this value is $5,600 or less (or $11,200 for married couples filing jointly), your car is completely protected.
Keeping Your Car in Chapter 7 Bankruptcy
Chapter 7 bankruptcy is the most common type of consumer bankruptcy, often called “liquidation bankruptcy.” While it eliminates most of your unsecured debts, you might worry that a trustee will take and sell your assets. Fortunately, Minnesota’s exemption laws protect your essential property.
Three Scenarios Where You Can Keep Your Car
Scenario 1: Your Equity Is Within the Exemption Limit
If your vehicle equity is $5,600 or less, your car is fully protected by Minnesota’s motor vehicle exemption. The bankruptcy trustee cannot take your vehicle because it’s covered by the exemption.
Scenario 2: You Have Negative Equity
If you owe more on your car than it’s worth, you have negative equity. The trustee has no interest in taking a vehicle with negative equity because there’s no value to distribute to creditors. You can keep the car by continuing to make your loan payments through a reaffirmation agreement.
Scenario 3: You’re Current on Payments
If you have a car loan, staying current on your monthly payments is essential. By signing a reaffirmation agreement, you agree to continue paying the loan after bankruptcy, and the lender allows you to keep the vehicle.
Understanding Reaffirmation Agreements
A reaffirmation agreement is a legally binding contract between you and your car lender. When you sign this agreement during Chapter 7 bankruptcy, you’re essentially saying: “I want to keep this car, and I agree to remain personally liable for this specific debt even though my other debts are being discharged.”
Key points about reaffirmation agreements:
- You must be able to afford the monthly payments
- The agreement must be filed with the bankruptcy court
- Your bankruptcy attorney must review and approve it
- You can sometimes negotiate better loan terms during reaffirmation
- The court will evaluate whether the agreement creates an undue hardship
What Happens If Your Equity Exceeds the Exemption?
If your vehicle equity is more than $5,600, you’re not necessarily going to lose your car. You have several options:
Option 1: Pay the Trustee
You can pay the trustee the difference between your equity and the exemption amount. For example, if you have $7,500 in equity, you could pay the trustee $1,900 ($7,500 – $5,600) to keep your vehicle.
Option 2: Use Additional Exemptions
Minnesota allows a wildcard exemption of up to $1,350 that can be applied to any property, including additional vehicle equity.
Option 3: File Chapter 13 Instead
Chapter 13 bankruptcy makes it easier to keep vehicles with higher equity through a repayment plan.
Option 4: Trade for a Less Expensive Vehicle
Before filing bankruptcy, you might consider trading your vehicle for one with less equity, though you should consult an attorney before making this decision.
Keeping Your Car in Chapter 13 Bankruptcy
Chapter 13 bankruptcy operates differently from Chapter 7. Instead of liquidating assets, you create a court-approved repayment plan lasting three to five years. This structure makes it much easier to keep your vehicle, even if you have substantial equity or are behind on payments.
Benefits of Chapter 13 for Car Owners
Catch Up on Past-Due Payments
If you’re behind on car payments and facing repossession, Chapter 13 allows you to catch up on the arrears over the life of your repayment plan while keeping your vehicle.
No Strict Equity Limits
Unlike Chapter 7, Chapter 13 doesn’t have strict equity limits. If your vehicle equity exceeds the exemption, you simply pay that value to your unsecured creditors through your repayment plan.
Potential Loan Modifications
For vehicles purchased more than 910 days (about 2.5 years) before filing bankruptcy, you may qualify for a “cramdown.” This allows you to reduce your loan balance to the car’s current market value and potentially lower your interest rate.
Stop Repossession Immediately
Filing Chapter 13 triggers an automatic stay, which immediately stops any repossession actions, giving you time to catch up on payments.
How the Cramdown Works
The cramdown provision in Chapter 13 can provide significant savings if you’re upside-down on your car loan.
Example:
- Original loan balance: $18,000
- Current vehicle value: $12,000
- Time since purchase: 3 years
With a cramdown, the secured portion of your loan is reduced to $12,000 (the car’s value), and the remaining $6,000 becomes unsecured debt in your repayment plan, which typically receives little to no payment.
Can You Keep Multiple Vehicles in Minneapolis Bankruptcy?
Minnesota’s vehicle exemption applies per person, not per household. This means:
- Single filer: One vehicle exemption of $5,600
- Married couple filing jointly: Each spouse can claim $5,600 for their respective vehicle, totaling $11,200
If you own multiple vehicles and only one has your name on the title, you can claim the exemption for that vehicle. If you and your spouse each own a vehicle separately, you can each use your individual exemption.
However, if all vehicles are titled in one person’s name, only one $5,600 exemption applies to that person’s vehicles. Planning vehicle ownership with a bankruptcy attorney before filing can help maximize your exemptions.
Special Considerations for Minneapolis Bankruptcy Filers
Accurately Valuing Your Vehicle
The bankruptcy court uses fair market value to determine your vehicle’s worth—not the trade-in value or retail price. Fair market value represents what a private buyer would reasonably pay for your car in its current condition.
How to determine fair market value:
- Check Kelley Blue Book (KBB) private party value
- Review NADA Guide listings
- Research comparable vehicles on local marketplaces
- Consider your vehicle’s mileage, condition, and any damage
- Get estimates from local dealers
Always document your valuation method. If your vehicle has high mileage, mechanical issues, or body damage, these factors reduce its value and increase the equity you can protect.
Leased Vehicles in Bankruptcy
If you’re leasing a vehicle rather than financing it, bankruptcy treats it as an executory contract. You have two options:
Assume the Lease: Continue making lease payments and keep the vehicle by affirming your commitment to the lease terms.
Reject the Lease: Return the vehicle to the leasing company, and any remaining lease obligation will be discharged in your bankruptcy.
Since leases rarely have equity, the bankruptcy trustee typically has no interest in them. Most people who can afford their lease payments choose to assume the lease.
Maintaining Required Insurance
Throughout your bankruptcy and after, you must maintain the minimum auto insurance required by Minnesota law:
- Bodily injury liability: $30,000 per person / $60,000 per accident
- Property damage liability: $10,000
- Uninsured/underinsured motorist coverage
If you have a car loan, your lender will require comprehensive and collision coverage as well. Failure to maintain proper insurance could result in your lender repossessing the vehicle or the trustee abandoning your exemption protection.
Steps to Protect Your Car When Filing Bankruptcy in Minneapolis
To maximize your chances of keeping your vehicle through bankruptcy, follow these steps:
1. Get an Accurate Valuation
Research your vehicle’s fair market value using multiple sources. Document any damage, high mileage, or mechanical issues that reduce value.
2. Calculate Your Equity
Determine exactly how much equity you have by subtracting your loan balance from the fair market value.
3. Stay Current on Payments
If you have a car loan, continue making payments on time. Missing payments before or during bankruptcy can jeopardize your ability to keep the vehicle.
4. Gather Documentation
Collect your car title, loan statements, insurance information, and maintenance records.
5. Consult a Bankruptcy Attorney
An experienced Minneapolis bankruptcy attorney can review your situation, advise on the best chapter to file, and help you protect your vehicle through proper exemption planning.
6. File Accurate Bankruptcy Schedules
Your bankruptcy petition must accurately list your vehicle’s value, equity, and loan information. Errors or omissions can create problems with the trustee.
7. Complete Required Reaffirmation (If Applicable)
If you’re keeping a financed vehicle in Chapter 7, work with your attorney to complete the reaffirmation agreement properly and on time.
When You Might Consider Surrendering Your Vehicle
While most people want to keep their car, there are situations where surrendering your vehicle in bankruptcy might be the better financial decision:
- Your monthly payment is unaffordable relative to your income
- The car needs expensive repairs
- You’re severely upside-down on the loan
- You have access to alternative transportation
- Your vehicle equity significantly exceeds the exemption and you can’t afford to pay the trustee
Surrendering a vehicle in bankruptcy eliminates your personal liability for any remaining loan balance after the car is sold, giving you true financial relief.
Common Mistakes to Avoid
Don’t transfer vehicle ownership before bankruptcy: Transferring your car to a family member or friend before filing can be considered fraudulent and may result in your bankruptcy case being dismissed.
Don’t take on new car debt right before filing: Purchasing or refinancing a vehicle immediately before bankruptcy can raise red flags with the court and trustee.
Don’t miss car payments during bankruptcy: Even though you’ve filed, you must stay current on secured debts you want to keep.
Don’t fail to disclose your vehicle: Failing to list your car on bankruptcy schedules is a serious error that can result in criminal fraud charges.
Frequently Asked Questions (FAQs)
1. Can I buy a car after filing bankruptcy in Minneapolis?
Yes, you can purchase a vehicle after filing Chapter 7 bankruptcy, typically after receiving your discharge (usually 3-4 months after filing). However, you’ll likely face higher interest rates initially. In Chapter 13 bankruptcy, you’ll need court permission to take on new debt, including a car purchase. Most Chapter 13 trustees will approve vehicle purchases if you can demonstrate need and ability to afford the payments while maintaining your bankruptcy plan.
2. What happens to my car if I’m behind on payments when I file bankruptcy?
If you’re behind on car payments, Chapter 7 bankruptcy won’t help you catch up—you’ll need to get current immediately or risk repossession. However, Chapter 13 bankruptcy allows you to catch up on missed payments over 3-5 years through your repayment plan. The automatic stay that goes into effect when you file immediately stops repossession, giving you breathing room to create a payment plan and keep your vehicle.
3. Can the bankruptcy trustee take my car if I need it for work?
Minnesota’s vehicle exemption protects your car regardless of whether you need it for work, as long as your equity is within the exemption limits ($5,600 for individuals, $11,200 for married couples). If you use your vehicle for work purposes and your equity exceeds the exemption, you might have a stronger case for paying the trustee to keep it or filing Chapter 13 instead. The trustee doesn’t evaluate how much you “need” the car—they only look at whether it’s protected by available exemptions.
4. How long after bankruptcy can I refinance my car loan?
You can typically refinance a car loan 12-24 months after receiving your bankruptcy discharge, once you’ve started rebuilding your credit. Chapter 7 bankruptcy remains on your credit report for 10 years, while Chapter 13 stays for 7 years. However, most lenders focus more on your recent payment history than the bankruptcy itself. Making consistent, on-time payments and rebuilding your credit score will improve your refinancing options and interest rates over time.
5. What if my car is worth more than the Minnesota exemption allows?
If your vehicle equity exceeds Minnesota’s $5,600 exemption (or $11,200 for married couples), you have several options: pay the bankruptcy trustee the difference to keep your car, apply Minnesota’s $1,350 wildcard exemption to cover additional equity, file Chapter 13 bankruptcy where you can keep the car by paying the equity value through your repayment plan, or consider surrendering the vehicle and purchasing a less expensive one after bankruptcy. Your bankruptcy attorney can help you evaluate which option makes the most financial sense.
6. Can I keep a financed car without reaffirming the debt in Minneapolis?
In Chapter 7 bankruptcy, most lenders require a reaffirmation agreement to keep a financed vehicle. Without reaffirmation, the lender can technically repossess the car even if you’re current on payments, though some lenders allow an informal “ride-through” where you keep paying without signing a reaffirmation. However, Minnesota courts generally require reaffirmation for vehicle loans. The benefit of reaffirmation is keeping the car; the drawback is remaining personally liable for the debt if you can’t make payments later. In Chapter 13 bankruptcy, you don’t need reaffirmation—you keep the car by making payments through your court-approved plan.
Get Professional Help Protecting Your Vehicle
Navigating bankruptcy while protecting your essential assets like your vehicle requires experienced legal guidance. The rules governing vehicle exemptions, equity calculations, and reaffirmation agreements can be complex, and small mistakes can have significant consequences.
At Buettner Law Group, we help Minneapolis residents understand their options and protect their property throughout the bankruptcy process. We’ve successfully helped countless clients keep their vehicles while obtaining the financial fresh start they deserve.
Contact Buettner Law Group Today
Brea A. Buettner-Stanchfield has helped Minneapolis residents navigate bankruptcy while protecting their essential assets. With personalized attention and deep knowledge of Minnesota bankruptcy law, we’ll help you understand your options and create the best strategy for your situation.
Contact Information:
Brea A. Buettner-Stanchfield, Esq.
Buettner Law Group LLC
Phone: 612-377-5311
Email: brea@buettnerlawgroup.com
Disclaimer: This article provides general information about bankruptcy law and vehicle exemptions in Minnesota. It is not legal advice for your specific situation. Bankruptcy laws are complex and individual circumstances vary. For advice about your particular case, please consult with a qualified bankruptcy attorney licensed in Minnesota.