If i file bankruptcy what happens to my car?

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Filing for bankruptcy can have significant implications on various aspects of your financial life, including your assets such as your car. If you find yourself in a situation where you need to file for bankruptcy, it’s essential to understand what might happen to your car during the process. In this article, we will explore the potential outcomes for your car when filing bankruptcy.

Chapter 7 Bankruptcy

What is Chapter 7 Bankruptcy? Chapter 7 bankruptcy is a type of bankruptcy that involves the liquidation of assets to repay creditors. When you file for Chapter 7 bankruptcy, a trustee is appointed to oversee the process. The trustee’s role is to identify and sell any non-exempt assets to repay your creditors.

Exempt vs. Non-Exempt Assets: In bankruptcy, there are exempt and non-exempt assets. Exempt assets are those that you can keep even after filing for bankruptcy, while non-exempt assets can be sold to repay your creditors. The specific exemptions vary depending on your state’s bankruptcy laws.

Car Exemptions: Many states have specific exemptions for vehicles in bankruptcy proceedings. These exemptions typically allow you to keep a certain value of equity in your car. For example, if your state’s exemption allows you to keep up to $5,000 in equity, and your car is worth $10,000 with a $5,000 loan, you may be able to keep your car by exempting the equity.

Equity and Car Value: Equity refers to the difference between the value of your car and any outstanding loans or liens on it. If the equity in your car exceeds the exemption limit, the trustee may decide to sell your car to repay your creditors. However, if the equity is within the exemption limit, you may be able to keep your car.

Chapter 13 Bankruptcy

What is Chapter 13 Bankruptcy? Chapter 13 bankruptcy is a type of bankruptcy that involves creating a repayment plan to pay off your debts over a three to five-year period. Unlike Chapter 7 bankruptcy, Chapter 13 allows you to keep your assets while repaying your debts.

Car Repayment Plan: In Chapter 13 bankruptcy, your car loan can be included in your repayment plan. The repayment plan will outline the amount you need to pay each month to catch up on any missed payments and eventually pay off the loan. This allows you to keep your car while still addressing your financial obligations.

Reducing Loan Amount: In some cases, Chapter 13 bankruptcy may also allow you to reduce the loan amount on your car. This is known as a “cramdown” and can be beneficial if you owe more on your car than it is worth. Through a cramdown, you may be able to reduce the loan balance to the car’s fair market value, potentially saving you money.


When filing for bankruptcy, the outcome for your car will depend on various factors, including the type of bankruptcy you file and the exemptions available in your state. In Chapter 7 bankruptcy, your car may be sold if the equity exceeds the exemption limit, while Chapter 13 bankruptcy allows you to keep your car and create a repayment plan. It’s crucial to consult with a bankruptcy attorney to understand the specific implications for your car based on your unique circumstances.


– Nolo: www.nolo.com/legal-encyclopedia/chapter-7-bankruptcy
– Investopedia: www.investopedia.com/terms/c/chapter13.asp
– United States Courts: www.uscourts.gov/services-forms/bankruptcy/bankruptcy-basics/chapter-7-bankruptcy-basics