How Do I Keep My Car Or Home During A Bankruptcy?

March 11th, 2009 by Reed Allmand

Many debtors considering bankruptcy often fear that they will be required to relinquish all of their assets after filing for bankruptcy. But this is not always the case. If you’re a debtor considering bankruptcy and want to keep a car or house (even if it’s not your primary resident) it may be possible depending on a few factors.

First of all the bankruptcy trustee is going to look at the value of all of your assets to determine if they can be liquidated to repay unsecured creditors. Unsecured creditors are at a disadvantage during a bankruptcy (compared to secured creditors) so the bankruptcy trustee will be hesitant to allow a debtor to keep “valuable” assets during a bankruptcy while unsecured creditors go unpaid. To determine the probability of a debtor keeping an asset the value of the asset must be determined. If the value of the asset is great enough that liquidating it would realize enough money to repay unsecured creditors then the bankruptcy trustee will want to seize that asset.

For example, if you own a car (not work related) and selling it would bring $5,000 cash profit, the bankruptcy trustee will want to sell the car and use the proceeds to repay unsecured creditors. But if on the other hand, the car would bring $0 profit or a minuscule amount such as $100 the bankruptcy court most likely won’t sell the car. The same scenario would apply to a home that wasn’t your primary residence. If you were upside down on a house you owned but didn’t live in, meaning you owed more on the home than it was worth, the bankruptcy trustee isn’t likely to liquidate it because no money would be realized by doing so. In the case of a primary residence, homestead exemptions usually protect the debtor from a liquidation of that asset during bankruptcy.