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Can You Sell Your Car While Filing Bankruptcy?

If you've found yourself strapped for cash in the middle of a personal bankruptcy filing, you may have considered selling off some of your possessions to boost your income and help you keep your head above water financially. But can you sell your car while filing bankruptcy legally? The answer depends on a number of factors.

Is It Legal to Sell Your Car During Bankruptcy?

The answer to this question depends on your specific situation. If you're considering selling your car while your case is active with the bankruptcy court, it's important to consider the following.

  • The court needs to know: Even if your car is worth very little and sells for only a couple hundred dollars, it's important that you disclose your decision to sell your car to your lawyer and your bankruptcy trustee.
  • The court may use the money to repay your creditors: Whether you've filed for Chapter 7 bankruptcy or Chapter 13 bankruptcy, your bankruptcy trustee may rule that the proceeds from your car sale must go toward repaying your creditors in some way.
  • Your bankruptcy case could be dismissed: If you sell your car and do not tell your trustee, you risk having the court dismiss your case – without discharging any of your debts. This means that you would be responsible for paying any and all debts that you entered bankruptcy court with, and unless you drove a very nice car indeed, it’s unlikely that the money you got from the sale will cover them all.
  • You could be charged with bankruptcy fraud: Depending on when and how you sell your car, you might also risk a charge of bankruptcy fraud, which can results when a filer (intentionally or otherwise) misstates her income, assets, obligations or debts in some way. Taking in income that you don't report (even if it is from a one-time car sale) looks suspicious to the bankruptcy court and can make it seem like you aren't making an honest effort to repay your debts.

Cars and Bankruptcy: Other Considerations

Here are some important things to consider if you're thinking about selling your car before or during a bankruptcy case.

  • Can you get to work? If your work performance or reliability will be affected without your car, it may be in your best interest to keep the vehicle; after all, it's difficult to recover from bankruptcy without an income. This may be especially true in a Chapter 13 case, where a reliable source of income is crucial to a successful repayment plan.
  • Can you downgrade? In some cases, trading a nice car for a less flashy or older model may allow you to save money without sacrificing function.
  • Will you use the money to pay off one debt before you file? If you'd like to pay back a family member or friend before filing bankruptcy, for example, take heed: that could be considered bankruptcy fraud. Consult with your lawyer before making any such decision.

Ask a Lawyer if You Can Sell Your Car while Filing Bankruptcy

While it is possible to sell a car or other asset before or during a bankruptcy case, there may be consequences if it's not handled properly. If you're ready to get a more in-depth legal perspective on what to expect during bankruptcy, you can connect with a bankruptcy attorney practicing near you for a free consultation.