Will I Lose My Work Truck If I File for Bankruptcy?

Find out how using bankruptcy exemptions and other techniques might help you protect your truck.

Filing for bankruptcy wouldn’t be a good way to go if you had to give up things that you need for your employment. Fortunately, most states allow you to exempt (protect) the equipment necessary for you to work in your profession up to a certain dollar value. Therefore, in most cases, it’s likely that you’d be able to keep an inexpensive work truck if you filed for bankruptcy.

How Exemptions Work

You don’t have to surrender all of your assets when you file for bankruptcy. Each state lists the things its citizens will need to maintain a home and employment in its exemption statutes. These laws allow you to keep, or “exempt,” the following types of items:

  • household furnishings
  • clothing and a wedding ring
  • a modest vehicle
  • an ERISA-qualified retirement, and
  • some equity in your residential home.

One of three (or more) frequently used exemptions might allow you to keep your work truck. Here’s a brief description of each:

  • Tools of the trade exemption. Most, but not all, states allow residents to keep a certain amount of property needed to work. A work truck will likely fall into this category if you’re able to demonstrate that you need it in your employment. The amount varies by state and ranges from approximately $1,500 to $10,000. (Learn more in The Tools of the Trade Bankruptcy Exemption.)
  • Motor vehicle exemption. This exemption allows you to keep a car, truck, or motorcycle if you file for bankruptcy. When you use this exemption, you aren’t required to explain what you use it for, so the fact that it’s a work truck won’t matter. However, very few states allow you to keep a vehicle without taking its value into account. Most will limit the protection to a few thousand dollars. (For additional information, see The Motor Vehicle Exemption: Can You Keep Your Car in Chapter 7 Bankruptcy?)
  • Wildcard exemption. Some states allow you to protect property of your choosing up to a particular value. These exemptions tend to be larger than others, so a wildcard exemption can be a good way to protect some, if not all of the equity in your truck.

Paying the Trustee for Nonexempt Property

If you aren’t able to use an exemption to protect the full value of your truck in a Chapter 7 bankruptcy, it’s likely that the bankruptcy trustee—the official appointed to manage your case—will let you pay for the nonexempt value. Also, if you keep the truck, the trustee won’t have to sell it. Some trustees will discount your payment amount to reflect the cost savings.

Filing for Chapter 13 Bankruptcy

Another option to consider is that of filing a Chapter 13 case. Why? You’re allowed to keep all of your property. The catch is you must pay the value of your nonexempt property—the portion of your truck that isn’t covered by an exemption—to your creditors over the course of a three- to five-year payment plan. (You’ll likely have to pay additional amounts, too.)

Consulting With an Attorney

Each bankruptcy case is unique. The purpose of this article is to provide information about bankruptcy principles only. To determine whether you can protect your particular truck, you’ll want to consult with a bankruptcy lawyer.

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