Generally, you’re allowed to keep at least one car during a Chapter 13 bankruptcy. If you have two or more vehicles and you file a Chapter 13, the number of cars you get to keep depends on your repayment plan. If having two or more vehicles is seen as necessary and reasonable in the eyes of your trustee, the court, and your creditors, then you can keep them. However, keeping multiple cars during an open Chapter 13 may not be the best decision.
Vehicle Exemptions in a Chapter 13
Unlike a Chapter 7, you get to keep your nonexempt property (house, vehicle) in a Chapter 13 because you repay your creditors over the course of a three- or five-year bankruptcy.
However, according to the legal experts at Nolo.com, you’re required to pay the equivalent value of your nonexempt property into your Chapter 13 plan. This means that the greater the value of your nonexempt property, the higher your bankruptcy plan payments.
It’s very possible that keeping the additional car or two could make your plan payments unaffordable. You also need to consider the expenses related to keeping those vehicles, including the monthly payment, insurance, fuel, maintenance, and repair costs.
If you’re cutting it close financially by keeping additional cars, and something goes wrong and you can’t afford them, you could end up in an even worse financial situation.
Determining if You Can Keep More than One Car during a Chapter 13
Whether or not you’re able to keep more than one vehicle depends on your trustee and what you owe creditors. Your trustee’s role is to make sure that most – if not all – of your unsecured debts get paid under your repayment plan, and that you contribute all of your projected disposable income over the plan term, according to Nolo.com.
Disposable income is what remains after subtracting the allowed bankruptcy expenses from your monthly pre-tax income, including any car payments. If your disposable income is above your state’s median for your household size, you then have a set amount that can be used for additional vehicle payments.
If your creditors and/or trustee doesn’t see a practical reason for you to keep and pay for additional cars, they can object to your plan and request that you give them up.
Your disposable income is just one factor that determines if you’re allowed to keep more than one vehicle during a Chapter 13. The last thing you need to prove in order to keep more than one car is that you're proposing to keep them in "good faith." This means your trustee and, if needed, the court looks at your repayment plan in full, your employment history, the accuracy of your bankruptcy documents, and the reasoning behind your bankruptcy filing.
If the court believes that your motivation and sincerity are reasonable, then you pass the good faith requirement. If not, you can request a hearing and attempt to get the court's approval. During the hearing, you must explain why your filing is in good faith, and that your request is reasonable and necessary.
Keep in mind that trustees and courts generally find keeping newer and/or luxury vehicles to be unnecessary if either is a second car.
Need Help Finding a Dealer to Work With?
It’s possible to keep more than one vehicle during a Chapter 13 bankruptcy. The cars you have must be seen as reasonable and necessary. If not, then you most likely are going to have to give up the extra vehicle.
A Chapter 13 bankruptcy takes three or five years to complete, and a lot can happen during that time. You may find yourself needing another car while the bankruptcy is open. If you get into that situation, CarsDirect is here to help.
We specialize in helping credit-challenged consumers get matched to the right dealership for them so they can get the financing they need. Getting started is simple! Just fill out our free auto loan request form, and we’ll get right to work connecting you.
