• When you file bankruptcy in Iowa, the property you can keep depends on the type of bankruptcy you file and the property's valuation. Bankruptcy is a federal procedure, but each state, including Iowa, determines the value of property that is exempt that debtors can keep. If you are still making payments on your car, the actual equity in your car may be low enough that you can keep the car if you maintain payments. If you file Chapter 13, you can keep all your property but must make payments to creditors. With a Chapter 7 bankruptcy, you may keep vehicles with more equity if you file a reaffirmation agreement.
  
  

Iowa State Exemptions

• When you file Chapter 7 bankruptcy in Iowa, you can keep up to $7,000 in equity in one motor vehicle. If you are still making car payments, you can compute the equity in your car by subtracting the amount you still owe from the value of the car. For example, if you owe $12,000 on a car worth $10,000, you have negative equity in your car and may exempt it for bankruptcy purposes. Similarly, if you have a car worth $40,000 and still owe $35,000, you have a net equity of $5,000 and may still exempt the car on your bankruptcy petition.
  
  

Reaffirmation Agreement

• Generally speaking, if your car has more than $7,000 in equity, you must hand it over to the trustee to liquidate on behalf of your creditors. However, there are a few other ways you can keep your car. One is to pay the trustee the difference between the value of the car and the $7,000 exemption. For example, if your car is paid off and is worth $10,000, you can usually pay your trustee $3,000 and keep your car. If you are still making payments, you can sign a reaffirmation agreement with your car finance company in which you pledge to continue making car payments according to the original terms of the contract.
  
  

Chapter 13 Bankruptcy

• If you file a Chapter 13 bankruptcy, a court approves a payment plan for your creditors, including your car finance company, if applicable. Under a Chapter 13 bankruptcy, you can keep all of your assets as long as you make payments, so unlike a Chapter 7 bankruptcy, the amount of equity in your car is irrelevant.