Can I Keep My Car in a Chapter 7 Bankruptcy Case When There is a Lien on It?

Posted by Kevin Ryan | Sep 16, 2016 | 0 Comments

The attorney who handles your case should verify that the lien on your vehicle was properly recorded under the applicable state law, so that it is a valid publicly noticed lien. This is usually not a problem for the major auto lenders and major banks and credit unions. It may become a problem if you bought your car and financed it at a local 'buy here, pay here" type business. It is more likely that the paperwork was mishandled or an error in the filing of the lien occurred. Sometimes a delay in filing the lien on the vehicle can enable a Chapter 7 bankruptcy Trustee to sell the car.

The bankruptcy Trustee has to pay off the full balance of a publicly noticed lien on a vehicle. In addition, the Debtor has to be paid the full value of any exemption taken on the vehicle equity. In a Chapter 7 case, this has the practical effect of discouraging the bankruptcy Trustee from selling a vehicle where there is a lien plus available exemption(s) that protect most of the value of the car. For example, a $15,000.00 vehicle ( value) with a $10,000 lien ( auto loan that complies with the above requirements for timely filing and recording with the Secretary of State) and a $4,000.00 vehicle exemption would leave $1,000.00 in unprotected equity in the vehicle if the Debtor files Ch 7. The bankruptcy Trustee has to weigh the risk of paying to tow the vehicle, advancing the auctioneer fees, insurance costs and other costs of sale, and having to pay the lienholder AND the Debtor the available exemption out of the sale proceeds. With a small amount of unprotected equity in the vehicle, it would be unwise for the Trustee to sell the vehicle. So long as the debtor remains current with the loan payments the debtor would be able to keep this vehicle in a Ch 7 bankruptcy case.

If the non-protected equity in the vehicle is more than $1,000.00, then you start to get into an area where the debtor may have to offer some money to the bankruptcy trustee to "buy back" the equity from the bankruptcy estate. Remember that the filing of the ch 7 bankruptcy case puts all of the debtor's property into the bankruptcy "estate." There is a sorting out process as the case is administered to see what amount of property, if any, has to be liquidated and paid over to creditors. This is why it is important to consult with an experienced bankruptcy attorney who knows both the legal and local practical realities of handling assets in Chapter 7 bankruptcy cases.

In a Chapter 13 Bankruptcy filing the Debtor retains all of his or her property. There are other issues which could be the subject of a separate blog post.

About the Author

Kevin Ryan

"I'll never be the kind of attorney your creditors want me to be. I'll always be the kind of attorney you NEED me to be. Call me. I'll BE there for you. And I'll make them go away."  -Kevin Ryan, Attorney at Law Kevin Ryan is a graduate of the College of Wooster and the Cleveland Marshall College of Law. He is admitted to practice before all Alabama State Courts, the United States District Court for the Southern District of Alabama, and the United States Bankruptcy Court for the Southern District of Alabama. The United States Bankruptcy Court is a part of the United States District Court. Since 1998, Mr. Ryan has represented thousands of individual clients in bankruptcy, criminal, divorce, probate, personal injury, and real estate matters.  Attorney Ryan is also a licensed real estate agent in Alabama.  He handles  Bank-owned properties, short sales, and conventional sales in addition to conventional real estate listings.   This wide range of experience enables Attorney Ryan to take a wider look at your legal matter. It is important to consult with an attorney who can see from experience how other legal issues may affect your situation, and advise you accordingly. Personal Info Kevin Ryan is a member of First Baptist Church in Silverhill, Alabama. He resides in Silverhill with his wife Jessica and their three children. Committed to helping our Clients achieve a fresh financial start Our practice focuses primarily on consumer bankruptcy matters under Chapter 7 and Chapter 13 of the United States Bankruptcy Code.  Our law practice also includes matters where bankruptcy litigation, appellate work, or involvement in civil lawsuits is needed by a client.     No representation is made that the quality of any of these legal services is of higher quality than another attorney or law firm.   The United States Bankruptcy Code requires the following notice:  We are a Debt Relief Agency, which means we help people get legal relief from their Debts through the bankruptcy process. Interested in learning more about our bankruptcy attorney near Mobile, Alabama? Contact Us for help with chapter 7 bankruptcy or chapter 13 bankruptcy in Mobile, Baldwin and Washington counties. Education Juris Doctor, Cleveland Marshall College of Law, 1997 Employed full time as a paralegal while attending law school in the evenings. B.A., The College of Wooster, 1994 NCAA Div.III All Conference (N.C.A.C.) Football Team : Defense 1993; Most Inspirational Senior Award 1993; Co-captain 1993; Letterman 1991-1993; Phi Sigma Alapha Fraternity 1991-1994; Athletic Director Jurisdictions Admitted to Practice Alabama


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I'll BE there for you.

I'll never be the kind of attorney your creditors want me to be. I'll always be the kind of attorney you NEED me to be. Call me. I'll BE there for you. - Kevin Ryan, Attorney at Law