Pennsylvania Bankruptcy Laws: Can You Keep Your Car?
Understanding Pennsylvania bankruptcy laws is essential for anyone considering filing for bankruptcy in the state. One common concern among individuals contemplating bankruptcy is whether they can retain their vehicle during the process. This article outlines the key aspects of Pennsylvania bankruptcy laws related to car ownership.
In Pennsylvania, individuals can file for either Chapter 7 or Chapter 13 bankruptcy, each offering different protections for assets like cars. The type of bankruptcy you choose will significantly impact whether you can keep your vehicle.
Chapter 7 Bankruptcy and Vehicle Retention
Chapter 7 bankruptcy, often referred to as liquidation bankruptcy, involves discharging unsecured debts to obtain a fresh financial start. However, it may require the liquidation of some non-exempt assets, which can raise concerns about your car.
Fortunately, Pennsylvania has specific exemptions that may allow you to keep your vehicle. The vehicle exemption in Pennsylvania allows individuals to exempt up to $1,600 in equity for a motor vehicle. This means:
- If your car's value is less than or equal to $1,600, you can typically maintain ownership of it without issue.
- If your car's equity exceeds $1,600, the bankruptcy trustee may sell the vehicle to pay creditors, unless you can cover the excess value with another exempt asset.
To determine the equity in your vehicle, subtract any outstanding loans on the car from its current market value. If you have a car loan, the loan amount is deducted from the car's fair market value to establish your equity.
Chapter 13 Bankruptcy and Vehicle Retention
Chapter 13 bankruptcy offers a different approach. This process allows individuals with a regular income to reorganize their debts and create a repayment plan, typically lasting three to five years. One of the significant advantages of Chapter 13 is the ability to retain all your assets, including your car, as long as you can keep up with your repayment plan.
In Chapter 13 bankruptcy:
- You must propose a repayment plan that outlines how you intend to pay off your debts, which may include keeping your car.
- If you are behind on your car payments, Chapter 13 can help you catch up. The bankruptcy court generally protects your vehicle from repossession while you work through your repayment plan.
Reaffirmation Agreements
In both Chapter 7 and Chapter 13 bankruptcies, debtors may also consider a reaffirmation agreement with their car lender. This agreement allows you to keep your vehicle while reaffirming your obligation to repay the debt after bankruptcy. It's essential to fully understand the terms, as this will make you liable for the car loan even after bankruptcy is filed.
Conclusion
In summary, whether you can keep your car during bankruptcy in Pennsylvania largely depends on the type of bankruptcy you choose and the equity in your vehicle. Chapter 7 may allow you to retain your car if its equity is within the exemption limit, while Chapter 13 provides more flexibility to maintain ownership through a repayment plan. Always consult with a qualified bankruptcy attorney to explore your options and figure out the best approach for your unique situation.