Chapter 7 and Car Issues: What to Know

25 January 2021
 Categories: , Blog


Chapter 7 is one of several bankruptcy options available to the average consumer. This form of bankruptcy is good at getting rid of nearly all debt in a matter of months. The only drawback, if there is one, is the potential for filers to have property seized. When it comes to property, most people in the US depend on their cars to get around, and the thought of losing it through bankruptcy can be troubling. Read on to find out why very few Chapter 7 filers lose property of any kind, including their vehicles.

Property Seizures and Bankruptcy

While this form of bankruptcy eliminates most debt, personal property like cars can be seized by the bankruptcy trustee and sold. The money from the sale is passed along to certain priority creditors, like the IRS, or used to pay administrative costs of the bankruptcy. The trustee is not free to seize whatever they want, however. Only property that falls outside certain financial limits is in jeopardy. What stops the trustee from seizing property? In most cases, it's exemptions.

Understanding Chapter 7 Exemptions

Every state offers filers exemptions, and they vary in scope and amount quite widely. Some states allow filers to keep their vehicles if they are below a certain value. Most states assign a dollar limit on the exemption. That means the filer can deduct that amount from the value of the vehicle. If the value is less than the exemption, they can keep the car. Some states allow couples filing bankruptcy jointly to double their exemptions. Additionally, some states allow filers to use federal exemptions rather than state exemptions. Finally, if you have recently moved to a new state, you might be able to choose which state you use when filing. Exemptions can be complex, and you will need to talk with your bankruptcy lawyer to find out what could happen to your car in your state.

Understanding a Vehicle's Value

Few people are able to buy a vehicle without having it financed. Until you pay the vehicle off, it's not your vehicle, and the bankruptcy courts cannot seize a vehicle that is still owned by the finance company. However, if the amount you owe is small enough and the value of the vehicle is high enough, they might seize it and pay off the loan so that they can sell it. It's vital that you understand the real value of your vehicle by deducting your loan balance from the value of the car (you can get an idea of its value by looking it up online ). In some cases, you can continue to pay your car loan and keep the car.

Speak to your bankruptcy attorney to find out more.