Can They Take My Car If I File for a Chapter 13 Bankruptcy?
A debtor contemplating filing for bankruptcy may have some concerns. If the debtor has heard that when people file for bankruptcy, they lose property, then these concerns are valid. Such a debtor may be relieved to know that not all debtors who file for bankruptcy lose their property. A debtor needs to know the rules of the different chapters of bankruptcy to determine if he will lose his house or car after filing his petition.
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Chapter 7
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After a debtor files for Chapter 7 bankruptcy, two things happen. A bankruptcy trustee comes in to administer the debtor's case, and the debtor's property is no longer hers. This property becomes property of the bankruptcy estate. The premise of Chapter 7 bankruptcy is that the bankruptcy court grants a discharge of the debtor's debts after the debtor's property has been sold to pay creditors. Therefore, the bankruptcy trustee will try to sell any property of the bankruptcy estate that will result in the creditor getting paid.
Property of the Estate
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If there is property of no value to the trustee included in the bankruptcy estate, the trustee will abandon that property back to the debtor. The debtor can also keep property listed as exempt from being sold by the state or federal government. The trustee will then look to find if there is anything of significant value left to sell in the estate. If so, the trustee will sell this property and distribute to proceeds the creditors according to priority.
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Chapter 13
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After a debtor files for Chapter 13 bankruptcy, a bankruptcy trustee will also administer this case, albeit in a different manner. The debtor can keep all of his property as long as he pays his debts in a debt repayment plan that will last for three or five years. The debtor makes these payments to the bankruptcy trustee, and the trustee distributes payment to each of his creditors.
Keeping Your Car
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If the debtor owns his car free and clear of any security interests, then he can keep his car during his Chapter 13 bankruptcy case. If the debtor was behind in making payments on his car, then the amount he was behind will be incorporated into his debt repayment plan. For example, if the debtor is behind by $1,000 on his car payments, the debt repayment plan will allow him to repay that $1,000 over the three or five years of his plan. The debtor will also need to make his regular car payments to keep his car.
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References
- Photo Credit luxury car - model toy car image by alma_sacra from Fotolia.com
