Will you lose your car if you file for bankruptcy? Generally no, however, there are some exceptions that you should be aware of. Section 362 of the U.S. Bankruptcy Code provides an “Automatic Stay” to protect consumers from their creditor’s collection activities during bankruptcy. Unless a creditor files a Motion to Lift the Automatic Stay they cannot repossess a vehicle during the bankruptcy. A Motion to Lift the Automatic Stay is nothing more than a creditor asking the bankruptcy court for permission to pursue its collection activities. A creditor must have a legitimate legal reason for why the Automatic Stay should be lifted otherwise their request will be denied. But the most common reason for allowing a creditor to pursue its collection activities is if the debtor is behind on payments. So in order to keep your car safe from the bank during the bankruptcy you need to be on time and stay on time with your payments.
Additionally, vehicles are protected from creditors and the bankruptcy court by law. A.R.S. § 33-1125(8) provides that Arizonians who are single can have up to $5,000 of equity in their vehicle. Married couples have a $10,000 exemption. The $10,000 can be used entirely on one vehicle or can be split equally between two cars. Also, people who have a handicap license plate receive a $10,000 exemption. So for example, if you are single and own a vehicle that is worth $4,999, the bankruptcy court cannot touch it. However, if you are single and own a vehicle that is worth $7,000 then you are over the exemption amount by $2,000 and the court is going to ask for $2,000 in order for you to keep it.
Bankruptcy laws and how they pertain to vehicles can be confusing however, during a free consultation you can speak with one of our skilled attorneys and see how your vehicle can be protected in bankruptcy.