While you risk losing some assets if you file bankruptcy, your husband's car is usually not affected. However, in some situations, your husband's car may be at risk. Whether your state is subject to community property law or common law makes a big difference as to how your husband's property is handled. Your state's bankruptcy exemptions also play a role, along with the bankruptcy chapter you choose to file.
The easiest way to protect your husband's car when you file bankruptcy is to file a Chapter 13 bankruptcy. Bankruptcy law protects all the assets of a debtor who files Chapter 13 bankruptcy, meaning the court will not seize any of your property or that of your husband. This is true even if you share a joint car loan with your husband. The terms of your Chapter 13 bankruptcy require you to make monthly payments to at least some of your creditors. Secured debts such as a car loan are usually paid in full over time. If you want to keep the car and can keep making payments, Chapter 13 bankruptcy protects it.
If you share joint ownership of a car with your husband, you must include that asset when you file a Chapter 7 bankruptcy no matter where you file. If you and your husband have much equity in the car, you might lose it. Chapter 7 bankruptcy allows exemptions for certain assets on a state-by-state basis. If the value of your car exceeds the allowable exemption in your state, your case trustee will likely seize the car, sell it at auction and pay off your creditors. If you have a loan against your car and it is exempt from court seizure, you still have to pay off your lender if you want to keep the car.
Community Property Law
Living in one of the nine community property states can put your husband's car in jeopardy if you file bankruptcy. According to community property law, a car you or he acquire after you get married is considered property of the marital estate, no matter who pays for it or whose name is on the title. If you file Chapter 7 in a community property state and cannot exempt your husband's car, he may lose it just as if it were in your name. Community property states as of 2012 included New Mexico, Washington, Louisiana, Nevada, Texas, Idaho, Arizona, California and Wisconsin.
If you file Chapter 7 bankruptcy in a common law state, your husband is likely to keep his car. If the car is registered solely in his name, it is not considered part of your bankruptcy and is protected. If the car is registered in both names and it is liquidated in a Chapter 7 bankruptcy, the trustee is required to protect your husband's share of the proceeds. That might be a small consolation if he loses his car, but at least he'll get his share in cash, which is more than he would get in a community property state.
- Nolo.com: Filing Bankruptcy Without Your Spouse, What Happens to Debts & Property?
- Bankruptcy in Brief: Exemptions, What Can I Keep If I File Bankruptcy?
- Nolo.com: An Overview of Chapter 13 Bankruptcy
- Bankruptcy in Brief: Secured Debt, The House & The Car
- Bankruptcy in Brief: Dealing With Secured Debts in Chapter 7
- Nolo.com: Marriage & Property Ownership, Who Owns What?
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