If you own your vehicles free and clear, you can protect and keep up to two vehicles with a total value of $7500, or $12,500 if you are over 60 or older or disabled. The Colorado exemption laws protect these valuable assets to allow you a fresh start with reasonable transportation. These numbers would be doubled for a couple filing together, and these values are generally determined by the wholesale, not retail, value.
If you owe money on your car and have equity in it, this equity is protected up to the above stated amounts. This is not very common because people usually owe what the car is worth or more than the car is worth.
If you owe money on your car, you can either give it back to the creditor and owe them nothing, or continue paying on it and keep it ONLY if you are current with the payments and have full coverage insurance.
A confusing area of keeping the car is the idea of REAFFIRMATION AGREEMENTS. Generally, car companies want you to sign a new agreement in the bankruptcy agreeing to pay for the car no matter what happens in the future. To be enforceable, this agreement must be approved by the Court.
These reaffirmation agreements are very bad in my opinion because if you later lost your job and couldn’t afford it, or if the car engine blew up, you would be responsible for the debt DESPITE the bankruptcy discharge. If you did not sign a reaffirmation and hard times hit, you can return the car later and owe the creditor nothing.
The Bankruptcy Reform At of 2005 requires reaffirmation agreements if you want to keep the car, but, in practice, most car lenders will allow you to keep the car and make payments even without the reaffirmation agreement. Also, payments made on a car without a reaffirmation agreement will not be reported to the credit agencies and will not help in rebuilding your credit after bankruptcy.
This area of law can be a little complicated and you should consult an attorney for a complete explanation. Call me, Peter Milwid, at 303-831-0733 if you have any questions.