Do I qualify for the exemptions for the state I currently reside in because of my active duty status?

You can surrender any collateralized asset in a chapter 7 bankruptcy, including your car. You don't need approval from the court or your lender. The bankruptcy will protect you from having to pay any deficiency, so if you want to get rid of your car, bankruptcy is the time to do it. On the other hand, you can keep the car if you want to. There's no need to sign a reaffirmation agreement. As long as you keep making payments on time, your lender will have no reason to repossess it. Later on, if you find yourself unable to make payments and your car gets repossessed, the bankruptcy will protect you from having to pay back any deficiency. If you sign a reaffirmation agreement, you will have to pay back the deficiency.

You probably qualify for the state exemptions. A chapter 7 bankruptcy will not discharge debts to your former spouse. You should have a bankruptcy attorney review your divorce decree, can discuss your bankruptcy options with that attorney.

Google 727 Redemption. They can help you buy the car for its fair market value. Usually the payments are less and you will save thousands of dollars. You will need an attorney to file this 722 Redemption motion for you, but he/she can be paid from the redemption company. If you shop around for an attorney, ask them if they have ever done a 722 redemption before. Or ask the 722 redemption company for a referral to a local attorney. Good luck!

You will use the exemptions from the state where you have maintained your legal residency during the past two years. If your changed your residency within the past two years, then you use the exemptions in the state where you previously claimed residence. Bottom line, what do your tax returns say about your residency?

For anyone, exemptions are available for the state where they're domiciled for the past two years, if they have been domiciled in more than one state during the last two years - then the state where they were domiciled for the majority of the six months preceding the last two years. So on December 1st , if you lived in Alabama from January 1 2014 to the present and in California from November 1, 2012 to December 31 , 2013 and your whole life before that you lived in Illinois You'd be entitled to Illinois exemptions, except if Illinois exemptions are limited to Illinois residents, in which case you'd be entitled to Federal exemptions. (If that's clear to you, I'd recommend that you go to law school on the military's dime and join JAG). There is a further issue that military are considered domiciled in the place they consider their permanent home regardless of where they are stationed. This can be their hometown or some other place they consider as their permanent home. You probably need a lawyer to work through the domicile issue. In any case, you can certainly surrender the underwater car and be discharged on the car loan.

You need to confer with a bankruptcy practitioner to determine if the state or federal exemptions are to your benefit, and what you qualify for. As for the car, assuming it is security for the loan, you will most probably want to abandon it, however if it a chapter 13 the shortfall may well be accounted for in the plan. SEEK COUNSEL.