What happens if you file for Chapter 7 bankruptcy and then at the meeting of creditors (also called the 341 hearing) the trustee wants to take your car? Unfortunately, if the Chapter 7 bankruptcy trustee wants to take your car, you can’t dismiss your case at the meeting of creditors.
Read on to learn more about your options if the trustee wants your car and will not dismiss your Chapter 7 bankruptcy.
(Learn more about what happens at the meeting of creditors.)
When you file for Chapter 7 bankruptcy, your car becomes property of the bankruptcy estate. This means that if you can’t exempt the entire value of your car, the trustee has the power to sell it and distribute the nonexempt portion to your creditors.
(To learn more about Chapter 7 bankruptcy and how bankruptcy exemptions can protect your car and other property, see our Bankruptcy Exemptions topic page.)
You don’t have an automatic right to voluntarily dismiss a Chapter 7 bankruptcy. The trustee will typically dismiss your case if you fail to attend your 341 hearing. However, if the trustee wants your car, he or she will not dismiss your case at the 341 hearing because that would prejudice (negatively affect) your creditors. In that case, you will have to get court approval by showing that you have a compelling reason (not just the loss of your car) to dismiss your bankruptcy.
To learn more about how to dismiss your bankruptcy, see Can You Dismiss Your Chapter 7 Bankruptcy After You’ve Filed?
Below, we discuss your options for keeping your car even if the court does not allow you to dismiss your bankruptcy.
Exempt the car if you can. Most states have a motor vehicle exemption that allows you protect a certain amount of equity in your car. If your motor vehicle exemption is not enough to cover the value of your car, look for other exemptions (such as a wildcard exemption) to exempt the rest. Learn more about the motor vehicle exemption and the car exemption amount in your state in our Motor Vehicle Exemption area.)
Convert to Chapter 13 bankruptcy. If you can’t dismiss your Chapter 7 bankruptcy, you may be able to convert it to a Chapter 13. In Chapter 13 bankruptcy, you get to keep your car in exchange for paying back a portion of your debts through a repayment plan. (Learn about Chapter 13 bankruptcy.)
Buy the car back from the trustee. If you can’t exempt the entire value of your car, you can usually buy it back by paying the trustee an amount equal to its nonexempt value. Since the trustee will be saving money on sale costs, you may even be able to negotiate and pay less.
For more information on what happens to your car in Chapter 7, including buying back the car from the trustee, surrendering the car, reaffirming the loan, and more, see Your Car in Chapter 7 Bankruptcy.