Can I Keep My Car if I File for Bankruptcy?
A vehicle represents freedom and independence. Many people rely on their cars for work, family commitments, and many other daily necessities. What happens if you file for bankruptcy in Pennsylvania? Could you lose your car? Will you have to sell your vehicle to pay off your debts? This is a relatively common question you might want to explore alongside an experienced bankruptcy lawyer in Hershey, PA.
Your Car May Be “Exempt Property”
Under federal bankruptcy laws, you can file for bankruptcy while keeping your “exempt property.” This includes about $5,000 under your vehicle exemption under Chapter 7 bankruptcy laws. If your vehicle is worth less than this amount, you do not need to sell it in order to pay off your debts.
Many people own vehicles that are worth more than $5,000. If this is the case, you may be forced to sell the vehicle. However, you would still receive that $5,000 exemption from the proceeds of the sale. For example, your vehicle might have a trade value of $20,000. If this is the case, you might need to sell the vehicle and receive the $5,000 exemption from the proceeds.
If you are trading in your vehicle for a cheaper option, the dealership might simply provide you with a car worth $5,000 with no cash exchanged. This could be a viable option if you need a replacement vehicle as soon as possible.
You could subsequently use this $5,000 to purchase a cheaper vehicle, allowing you to continue with work and family commitments. Although this might not be an ideal situation, the Chapter 7 bankruptcy process should be over in a matter of months. Once this concludes, your creditors can no longer pursue your debts – and you can simply save up for a better vehicle. The cost of losing your vehicle of choice for a few months might be well worth it in exchange for a fresh slate.
You Can Keep All of Your Property in a Chapter 13 Bankruptcy
If you qualify for a Chapter 13 bankruptcy, you may be able to keep your property. This includes your vehicle, regardless of its value. In a Chapter 13 bankruptcy, you do not need to sell nonexempt property to satisfy your debts. However, you do need to create a reasonable debt repayment plan.
If your car payments represent a major drag on your monthly budget, it may be prudent to sell the vehicle and choose a cheaper option. If you clearly cannot afford these car payments due to your debt, the bankruptcy court may not approve your repayment plan until you eliminate these costs.
Contact Audi Law to Learn More About Exempt Property During Bankruptcy
Although losing your vehicle might seem like a daunting prospect, you may find it relatively easy to keep hold of it (and any other exempt property) during bankruptcy proceedings. The truth is that many misconceptions surround the bankruptcy process, and it’s probably a good idea to explore these concepts with a legal professional. Contact Audi Law at 717-707-5611 or visit us online to schedule a more complete conversation.