Chapter 7 bankruptcy might be the only legal process for debtors to address obligations they cannot repay. When liabilities exceed income and assets by a considerable margin, filing for bankruptcy in a Connecticut federal court might be the only option. Chapter 7 bankruptcy provides for non-exempt assets to be liquidated and the proceeds used to repay creditors. However, some might fear the court will require them to lose their car.
Automobiles and Chapter 7 bankruptcy
Bankruptcy eliminates many problems someone struggling with excessive debt faces, such as dealing with collection agencies and the threats of lawsuits. Upon filing for Chapter 7, all collection activity stops. The court then oversees the repayment of specific debts through asset liquidation. That does not mean the court will leave someone destitute or in a position where they cannot make a living. So, debtors may get to keep their cars during bankruptcy proceedings. Additional rules apply.
The court will look at the vehicle and assess the fair market value. A specified exemption allows someone to keep a car worth up to that value. Someone filing for bankruptcy may find the court less inclined to let them drive around with a luxury vehicle. So, if a vehicle is worth $40,000, the bankruptcy trustee may force the sale of the car and give the debtor the exemption amount and use the remaining sale price to pay creditors.
Points about cars and Chapter 7
There are other things bankruptcy filers might not realize about how Chapter 7 addresses vehicles. A married couple filing jointly could take two exemptions for two vehicles. Also, a wildcard exemption may allow someone to keep a car that exceeds the exemption amount.
State exemptions amounts could be better than the federal ones. Filers might wish to review state laws to determine which option is better.