In many ways, your car is your lifeline. Without one, getting from place to place becomes difficult. Yet, if you’re preparing to file bankruptcy, you may fear you will lose it during proceedings. While some people must forfeit their car during bankruptcy, you might not have to.
Chapter 7 bankruptcy
Many states allow you to protect vehicles during Chapter 7 bankruptcy. Tennessee does not permit this exemption. Yet, you can apply the state’s wildcard exemption to your car. This provision allows you to keep up to $10,000 in chosen personal property. So long as your vehicle’s value falls beneath this threshold, you will likely keep it. You may also get to keep your car if its equity – the difference between its value and the amount you owe on your auto loan – falls below the wildcard limit. Otherwise, a court-appointed bankruptcy trustee will sell it to pay your creditors once your automatic stay lifts.
Chapter 13 bankruptcy
If you file Chapter 13 bankruptcy, you will create a repayment plan to satisfy your creditors. This plan allows you to pay down your debts – including your auto loan – over a period of three to five years. And in most cases, it allows you to keep the vehicle you owe money on while doing so. Yet, you could lose it if you make high monthly payments, since a bankruptcy court may deem these an unnecessary expense. You could also lose your vehicle if its equity is significant, which may make payment difficult. But in either case, you could end up keeping your vehicle if you qualify for a cramdown. This process allows you to repay its current market value instead of your loan’s remaining balance. You can only use a cramdown, though, if you’ve owned your car longer than two-and-a-half years.
Losing your vehicle during bankruptcy is a frightening prospect. Yet, it’s one you can avoid by taking advantage of exemptions or repayment provisions.