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How Long Can I Keep My Car After Filing Chapter 7?

You might have heard that bankruptcy can wipe out tens of thousands of dollars of debt. You might have also heard that bankruptcy will strip you of everything you own—including the essential property you use every day, such as your car.

The first statement is true. Depending on your circumstances and the type of debt, bankruptcy may eliminate most or all of what you owe. However, most people who file Chapter 7 can protect everything they own—including their vehicle—from the liquidation process.

Let’s take a closer look at how you might be able to protect your car through the bankruptcy process, as well as when you might need to part with it if you cannot protect it.

The Automatic Stay

No matter what type of bankruptcy you file, you will benefit from the automatic stay. This is an order from the court that halts all debt collection activities.

As such, creditors and collection agencies cannot:

  • Contact you via phone calls, texts, letters, etc.
  • File (or continue with) a debt collections lawsuit
  • Enforce a judgment against you (e.g. wage garnishment, bank levy, etc.)
  • Foreclose your home
  • Repossess your car

This protection is one of the greatest benefits of bankruptcy, and it lasts for the duration of your case (unless you have already filed bankruptcy before, in which case the protection may end within 30 days).

If you file Chapter 7, therefore, you may benefit from up to 6 months of protection against repossession—even if you are behind on payments.

But What About Liquidation?

The automatic stay can keep you from losing your car while your bankruptcy case is open. But what if the trustee decides to sell your car and use the proceeds to repay your creditors?

Fortunately, you may be able to protect your vehicle from this liquidation process. When you file Chapter 7, you can choose to exempt certain funds and assets from liquidation—in other words, you can prevent them from being sold off.

Each state has different exemption laws and values. Pennsylvania, for example, has some of the most limited exemptions in the country. Fortunately, Pennsylvania gives filers the choice between state and federal exemptions, and federal exemptions are more generous. If you choose federal exemptions, you can likely protect up to $4,000 in equity in your vehicle. If your car’s fair market value (i.e. what you would get for it if you sold it in today’s market) is $4,000 or less, you can protect it from liquidation.

When the Exemption Is Not Enough

If this exemption is not enough to cover your vehicle, the trustee will likely sell it. However, you will receive $4,000 (the exemption amount) from the sale. In this case, you will likely part with your vehicle within the first few weeks or months of your case. The exact timeline may depend on several factors.

If you need bankruptcy relief but do not want to part with your vehicle, you may benefit from Chapter 13, instead. You will need to make monthly payments for 3-5 years, but you can benefit from a debt discharge at the end of this repayment plan. Chapter 13 might even result in a cramdown, which is when the court reduces what you owe on your vehicle to its fair market value.

You might also have non-bankruptcy alternatives at your disposal, which you can discuss with an experienced attorney.

Explore All Your Options with Our Team

At Dethlefs Pykosh & Murphy, we want you to know that you don’t need to handle this financial crisis on your own. Our attorneys personally handle each case from beginning to end, answering clients’ questions and addressing their concerns. If you are considering filing bankruptcy but aren’t sure how it might affect your situation, let us assess your circumstances and provide fully personalized, professional recommendations.

Give us a call at (717) 559-0271 or contact us online to schedule your courtesy evaluation today.

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