No one wants to have to go through bankruptcy. The fact that you might not be able to repay your debt is hard enough. But bankruptcy means that creditors and lawyers have to get involved. When this happens you will have a ton of questions. One of those questions will probably be can I sell my car while in chapter 13?
What is Chapter 13 Bankruptcy?
As one of the most common types of bankruptcy, you have probably heard of chapter 13. But it is one of many chapters of bankruptcy, so what makes this kind different?
Chapter 13 bankruptcy, also referred to as a wage earner’s plan, is designed to allow debtors to repay their debt. Instead of a judge determining that your debt released, you must repay your debt over a three to five year span.
This type of bankruptcy is reserved for people who have income but cannot keep up with their debt. If you are employed but can’t afford your car payments, you may default on payments. If this happens than the creditor can try to recover payments.
If you cannot repay and decide to claim chapter 13, a judge will need to intervene. The judge will determine how much you can feasibly pay and put you on a payment plan to repay some or all of the remaining debt.
Selling a Car in Chapter 13 Bankruptcy
Depending on your personal situation, it is possible to sell your car while in chapter 13. It will depend on what exemptions your judge gives you during your hearing, so talk to a lawyer to figure out your personal situation. This is different than selling a car with a bonded title. The decision will come down to someone called a Trustee – the person overseeing your payment plan.
If and when you determine you can sell your car during bankruptcy, there are a few important steps to take. The most important part is being able to make payments on your car. You may be able to sell the car, but if you default on the car then the creditor will not let you sell it. Even if you are just late on payments, the bankruptcy trustee is ultimately in control.
Once you get approval from your trustee, then you are free to sell your car. Make sure to stay up to date on your registration and car title. Keep in mind that if you do sell your car while in chapter 13, then your financial situation will have changed. That means you now have more money and one-less asset to pay down.
The trustee may make you take these proceeds from the sale to put towards your payment plan. It is their job to make sure you repay your debts only, so even if you need that money for another reason, your trustee may determine it must go towards another debt.