Sell Your Car Before it Gets Repossessed in Bankruptcy

Should you sell your car before it gets repossessed in bankruptcy? The short answer is probably not, but the best thing you can do if you will be filing bankruptcy is to retain an attorney who specializes in bankruptcy law who can answer this question as it pertains to the type of bankruptcy you will be filing as well as your entire financial picture at the time of bankruptcy.

Prior to the Bankruptcy Reform Act of 2005 it was very common to sell off your non-exempt assets such as expensive cars as part of an "exemption planning" strategy. Cash received could be used to pay down debt on exempt assets, such as your primary residence. However, since 2005 many attorneys will advise their clients to avoid this gray area completely by not selling any assets before a bankruptcy filing.

Assets you own that can be considered exempt from a bankruptcy include your home, the car you need to drive to work, but be careful because exemptions can vary widely from state to state and also vary based on whether the bankruptcy is Chapter 7 or Chapter 13. As an example, in Florida your home is exempt if you live in a municipality only if it sits on a lot that is a half acre or less in size and in Utah food that you have purchased in an amount that could feed your family for up to one year is considered an exempt asset!

So, when it comes to whether or not to sell your car before it gets repossessed in bankruptcy, talk to your bankruptcy attorney. If it is just one vehicle and the sale results in only a few thousand dollars it may be acceptable; but more conservative attorneys will discourage this, particularly immediately before the bankruptcy is filed. Filing bankruptcy does not automatically mean that you will lose your car to repossession; there are alternatives available that your attorney can discuss with you.

Under Chapter 7 bankruptcy, you may be able to sign a reaffirmation agreement which will allow you to keep both your car and continue making payments on your car loan. Under Chapter 13 bankruptcy if you have had a car loan on the car for more than 910 days you may be allowed to keep your car but modify the loan to the current value of the car. Talk to an attorney for the best advice to fit your personal situation.

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