A few patches of bad luck can put almost anyone in bankruptcy. Where just a year or so ago you were financially stable, even able to afford payments on a nice vehicle, a year later it could be a very different story. But what happens to your car when you need to declare bankruptcy?
First things first, what happens to your car depends upon the type of bankruptcy that is most suited to you. If you have a job or a steady stream of income, you’ll likely choose Chapter 13 bankruptcy. Chapter 13 bankruptcy gives you the chance to pay back a portion of, or all of your debt in a much more realistic or easy-to-pay way. Because of this, so long as you keep to the agreement made, your personal possessions are safe from liquidation (being sold off).
Chapter 7 bankruptcy is a different story. It is the most common form of bankruptcy and is filed when a person has no way to pay their debts other than to liquidate their valuable items.
Even in Chapter 7, you may not lose your car. If your car has less than $5,000 of equity per debtor, though in some cases up to $10,000, it is exempt from liquidation. Equity is the value given to an item, so in this case, it means that if your car is worth less than $5,000, it cannot be sold off as part of the bankruptcy process.
Another thing that may prevent your car from being sold is if it is deemed ‘over-encumbered. – This is simply a fancy way of saying there are debts tied up in the car, usually through a car-related loan.
Many people, however, find the bankruptcy process overwhelming and simply want things over and done with so they can move on with a clean slate. In this case, many debtors choose to sell their cars to help pay their debts. It really depends on your personal situation; how much you rely on your car or how much you feel that you need to hold on to it.
Filing for bankruptcy isn’t the right solution for everyone. The determination of whether or not bankruptcy is an appropriate debt relief solution for your will be made based on a number of factors including the type and total level of your debt. Use this form to schedule an appointment with one of our bankruptcy attorneys. The consultation is completely free and there is no obligation.