Everyone needs transportation to get to work, take children to school, attend medical appointments, and do other pressing errands. But your belongings—including your car—must meet bankruptcy requirements. We explain how your answers to these two questions will determine whether you can keep your vehicle in bankruptcy:
You'll also find a handy vehicle calculation shortcut at the end of the article.
When finished, consider exploring how bankruptcy works and learning other helpful things about bankruptcy. And check out our quick ten-question bankruptcy quiz—it can help you spot potential bankruptcy issues fast.
Everyone who owns a car and files for bankruptcy will need to calculate their vehicle's equity. Here's how to calculate vehicle equity for bankruptcy:
All the equity you can protect is known as "exempt equity." Any portion not covered by an exemption is "nonexempt equity." Keep reading to learn how exempt and nonexempt equity affect your ability to keep your car in bankruptcy.
You'll likely lose your car in Chapter 7 if you can't protect all of the vehicle's equity. It will depend on how much equity is available to pay creditors.
Here's the test: If a reasonable amount would remain for creditors after giving you the exemption amount, paying off any vehicle loans, and deducting sales costs, the Chapter 7 trustee will sell the car. If not, the trustee won't waste time or effort selling your vehicle.
You might also lose your car if you're behind on your car payment when you file for Chapter 7. The lien rights you gave the lender let the creditor repossess the vehicle when you fall behind, and Chapter 7 doesn't have a repayment plan provision that will help you catch up on the payment.
Read through each situation to determine the likelihood of keeping your car. You won't lose it if your situation matches one of the scenarios.
You won't lose your car in Chapters 7 or 13 in these situations:
You won't lose your car in Chapter 7 in this situation:
You won't lose your car in Chapter 13 in this situation:
This shortcut will help you determine if you can keep a car in bankruptcy.
Bankruptcy is an unusual area of law because it's essentially a qualification process. The laws provide instructions for completing a 50- to 60-page bankruptcy petition, and because all rules apply in every case, you can't skip a step.
The forms and resources below will help you find more information. Also, you can use this list of Chapter 7 and 13 bankruptcy forms to see where this topic falls. And this handy bankruptcy document checklist will help you gather the things you'll need to complete the petition.
More Bankruptcy Information
We want to help you find the answers you need. Go to TheBankruptcySite for more easy-to-understand bankruptcy articles, or consider buying a self-help book like The New Bankruptcy by Attorney Cara O'Neill.
We wholeheartedly encourage research and learning, but online articles can't address all bankruptcy issues or the facts of your case. The best way to protect your assets in bankruptcy is by consulting with a local bankruptcy lawyer.