Misinformation about bankruptcy sometimes keeps people from filing. You might have heard a myth and believed it was true. For example, some people think that they have to get rid of all their personal property if they file for bankruptcy.
While property liquidation is sometimes part of bankruptcy, it isn’t necessary for everyone who files. Some people don’t have enough assets to qualify for property liquidation, while others don’t file a form of bankruptcy where their assets are subject to sale in order to repay creditors.
Still, if you have a financed car, you probably worry that you could lose it if you file for bankruptcy. Is your vehicle at risk in bankruptcy proceedings?
Massachusetts understands that people need cars
Although vehicles can be a luxury, most people rely on them for daily necessities like traveling to work, getting their kids to school and attending medical appointments. You need a car to safely and effectively run a household.
Bankruptcy is meant to help people wipe the slate clean and regain control of their finances, not push them into other poverty. Losing a vehicle could mean losing your job, along with many other potential consequences. There are exemptions in bankruptcy that protect your vehicle.
How much of your vehicle’s value can you protect?
People who file for Chapter 7 or liquidation bankruptcy do sometimes have to sell some of their property as part of the process. However, you can exempt some of the car’s value from the liquidation process. If you file for Chapter 7 bankruptcy, you can usually protect $7,500 worth of value in your vehicle. If you have a disability or are over the age of 60, you may be able to protect $15,000 of vehicle value.
If the amount of equity you have built up in your car is lower than the amount allowed given your circumstances, you won’t have to do anything. If you have more than the allowable amount of equity, you may need to refinance the vehicle to repay your creditors.
When it comes to individual bankruptcy, those filing for Chapter 13 bankruptcy don’t have to worry about their vehicle at all. While they can use the proceedings to renegotiate the terms of the loan, as long as they reaffirm the car loan, they will be able to continue paying off that vehicle and driving it.
Making good decisions about when and how you file for bankruptcy can help you minimize its impact on your property and maximize the benefits you receive.