How a car gets treated during bankruptcy

Consumers may consider bankruptcy in Wisconsin when they have debts that they can no longer manage. However, a debtor may have concerns over losing their vehicle in bankruptcy. It depends on the type of bankruptcy filed and several other factors for the vehicle to be included in the case.

Vehicles in Chapter 7 bankruptcy

More debtors file Chapter 7 bankruptcy because of the ease of filing and speed of the process. It erases some debts by selling non-exempt assets through a trustee to pay creditors. Each states sets different monetary limitations on keeping assets and vehicle exemption.

Whether or not the vehicle gets included depends on the equity. If the debtor owns the vehicle, then the vehicle value represents the equity. For debtors who have loans, the equity equals the loan amount minus the vehicle value. For example, if the state sets a $5,000 exemption limit and the equity comes to $4,000, the debtor would be able to keep the vehicle.

Most states allow debtors to exempt primary vehicles used for work or hardships. The state also may allow a wild card exemption for assets up to a certain value. However, a lender can repossess a vehicle if the debtor falls behind on payments.

Vehicles under Chapter 13 bankruptcy

Chapter 13 bankruptcy gives debtors a chance to gradually pay creditors under a court-arranged plan. The debtor may keep assets as long as they stay current on payments. The courts commonly give debtors three to five years to complete the payment plan.

Each type of bankruptcy has an automatic stay, which means the creditor must cease collections and repossession. However, the debtor must pay the creditor the non-exempt amount equal to what they would get under Chapter 7.

Self-representation is possible during bankruptcy, but bankruptcy law is complex. Debtors who represent themselves risk getting their cases dismissed because of oversight or error. To keep their bankruptcy cases from being dismissed, debtors may consult attorneys for help.