Filing for bankruptcy often brings up concerns about personal property, especially something as important as a car. Many people worry that they might lose their vehicles, which could severely impact their daily lives.
Knowing how bankruptcy laws protect cars can help ease these concerns and reduce stress during the process.
Types of bankruptcy
There are two main types of bankruptcy for individuals: Chapter 7 and Chapter 13. Each type has different rules for handling debts and assets. Chapter 7 involves liquidating non-exempt assets to pay creditors. Chapter 13 allows you to keep your assets but requires a repayment plan.
Chapter 7 bankruptcy
Bankruptcy exemptions protect certain property from being taken by creditors. In Chapter 7 bankruptcy, if your car’s equity is within the exemption limit and you are current on payments, you can keep your car. If the car’s value exceeds the exemption, you may need to pay the difference to the trustee. If you cannot afford to keep the car, you might choose to surrender it and discharge the loan.
Chapter 13 bankruptcy
In Chapter 13 bankruptcy, you can keep your car by including the loan in your repayment plan. The court will approve a plan that allows you to pay off your debts over three to five years. This plan can also reduce the interest rate on your car loan and even lower the principal amount owed.
By carefully navigating the bankruptcy process and understanding the exemptions available, you can protect your car and ensure it remains in your possession.