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Can you lose your car even if you file for bankruptcy in Texas?

Bankruptcy is a legal process that can help you find relief if you struggle with debt. It can even mean a fresh start.

However, many people wonder whether they can lose their car if they file for bankruptcy.

Bankruptcy in Texas

The average household in Texas owns two cars, and bankruptcy laws provide certain exemptions. They protect major assets such as a home, personal belongings and vehicles.

These exemptions may allow you to keep certain property even after you file for bankruptcy. However, the specifics of these exemptions vary depending on the type of bankruptcy and individual circumstances.

Chapter 7

Chapter 7 bankruptcy, also called liquidation bankruptcy, involves the sale of nonexempt assets to pay off creditors. You can use exemptions under Texas law to protect your car from sale to repay debts. You should be able to keep your car as long as the equity in the vehicle falls within the exempted amount.

Chapter 13

Chapter 13 bankruptcy involves creating a repayment plan to gradually pay off debts over three to five years. Unlike Chapter 7, Chapter 13 does not require the liquidation of assets to repay creditors. Instead, individuals can keep their assets while making affordable payments to creditors through the court-approved repayment plan.

This means as long as you can afford to maintain payments on your car loan, you should be able to keep your vehicle.

Exceptions and considerations

While bankruptcy laws in Texas generally allow individuals to keep their cars, certain circumstances may affect the outcome. For instance, if a debtor is behind on car payments, the lender may have the right to repossess the vehicle regardless of bankruptcy status. Additionally, individuals must ensure that they meet all legal requirements. They need to properly disclose their assets when filing for bankruptcy to avoid potential complications.

Both Chapter 7 and Chapter 13 bankruptcy offer options to protect cars. Understanding a few basics can help people navigate the processes effectively.


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