Can You Sell a Car While Filing Bankruptcy?
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Can You Sell a Car While Filing Bankruptcy?

The answer to whether you are able to sell a car while going through bankruptcy depends on the nature of your car ownership and the type of bankruptcy you are filing.

Before you are able to sell your car, you must first determine whether you'll actually be able to keep your car during bankruptcy. Many people get to keep their property when they file for bankruptcy.

If you decide to sell your car during a bankruptcy filing, proceeds from the sale may be used to pay off your creditors.

On the other hand, if you try to sell your car to prevent the court from taking it, this could constitute bankruptcy fraud, which can be considered a criminal offense.

To learn more about what may or may not happen to your car if you file for bankruptcy, talk to an attorney today:

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Can You Sell Your Car if You File for Chapter 7 Bankruptcy?

In Chapter 7 bankruptcy, some of your assets may be liquidated in order to pay your creditors. Many assets, including items necessary for daily living, are exempt from liquidation.

Cars are sometimes protected as exempt, so bankruptcy filers may be able to keep their car during bankruptcy, though this depends on state bankruptcy laws.

Even though people may be able to keep their car during Chapter 7, they may not want to sell it during bankruptcy because:

  • If a car is considered exempt property and a person sells that car, the bankruptcy court may use the proceeds to pay creditors.
  • Selling the car may change your list of assets and liabilities, which could complicate the bankruptcy process.

Of course, these scenarios assume that filers own their cars outright. If, instead, a filer still owes money on the car, and wants to keep it after bankruptcy, there are other options.

First, a filer can continue making payments on their loan. If this is not possible, a person could pay off their loan in one single payment.

If neither of these options works, a filer may be able to just hand the keys over to their lender and possibly eliminate their car debt.

Can You Sell a Car in Chapter 13 Bankruptcy?

Since Chapter 13 bankruptcy, typically lasts between three and five years, it's more likely that the filer may want to sell his or her car at some point.

One major advantage of Chapter 13 is the ability for most people to keep their cars, even if they have fallen behind on their car loan payments.

Here are a few possible car sale scenarios in Chapter 13:

  • If a person owns her car outright, and decides to sell it, the funds may be viewed as a source of income by the court, and the filer may be ordered to give a portion to creditors. Be sure to speak with your attorney (and the bankruptcy trustee) before selling a car during a Chapter 13 repayment period.
  • If a person is still making car payments, she may still be responsible for fulfilling her loan obligation to her lender. In this case, it may not be a good idea to sell the car.

In the end, your ability to sell your car while filing bankruptcy depends on a number of different factors.

For more information, contact a local bankruptcy attorney today.

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