Selling a junk car while you're in bankruptcy

So the order is: work out what the car is worth to you after any loan, check which exemption list your case uses, and get a clear go-ahead from your attorney, the trustee or the court before anyone tows it away.

Chapter 7: the trustee sells what isn't protected

In a chapter 7 case, a trustee gathers the debtor's nonexempt assets, sells them, and pays creditors from what they bring (U.S. Courts). The statute states the duty in plain terms: the trustee must "collect and reduce to money the property of the estate" (11 U.S.C. 704).

That doesn't mean everything you own is up for sale. Chapter 7 lets you keep certain exempt property, and the trustee liquidates what is left after exempt property is set aside (U.S. Courts).

For a junk car, then, everything turns on one question: does an exemption cover its value? If it doesn't, the car is something the trustee is charged with turning into money for your creditors. The chapter 7 trustee must "collect and reduce to money the property of the estate," so a quiet sale to a scrap buyer cuts across that job. Ask first.

The vehicle exemption protects equity, not the car

The federal list includes a motor vehicle exemption at 522(d)(2). It covers your interest in one motor vehicle, up to a dollar cap (11 U.S.C. 522). Your interest means your equity: what the car is worth, minus anything you still owe on it. The exemption does not protect the full sale price.

The cap was raised in 2025 (Federal Register):

Working out equity on a car that no longer runs takes two numbers:

• What the car will bring as it sits. A broken car is worth what a buyer will pay for it today, not what it was worth running. Our junk car value guide explains what drives that number.
• The loan balance. With a loan on it, ask the lender for the payoff figure. The car loan guide covers why the payoff and your statement balance can differ.

Subtract the second from the first. That's the figure the exemption has to cover.

You pick federal or state exemptions

An individual debtor may claim the federal exemptions in 522(d) or, as an alternative, the exemptions available under state law through 522(b)(3). The choice is the debtor's (11 U.S.C. 522). This page doesn't list state amounts. Your attorney will know which list your filing used and how much room it leaves for the car.

Chapter 13: the car stays with you, but a sale isn't routine

Chapter 13 works differently. You keep your property and pay debts back over a plan, usually three to five years (U.S. Courts).

The code gives the chapter 13 debtor the trustee's sale powers under section 363(b), (d), (e), (f) and (l), "exclusive of the trustee" (11 U.S.C. 1303). In other words, you are the one who would make the sale.

Those powers come with a condition. Section 363(b)(1) says a sale of estate property outside the ordinary course of business happens only after "notice and a hearing" (11 U.S.C. 363). Whether your sale falls under that rule is a question for your attorney. Assume it does until you hear otherwise.

Plan confirmation can change the answer

Once the court confirms a chapter 13 plan, the estate's property vests in the debtor, unless the plan or the confirmation order says something different (11 U.S.C. 1327). So the rules before confirmation and after it may not match. Read your plan, or ask your attorney, before you sign a title.

A checklist before the car goes anywhere

1. Know your chapter. Chapter 7 and chapter 13 put the decision in different hands.
2. Work out your equity. Value as it sits, minus any loan payoff.
3. Check the exemption list. Federal or state, and how much of it the car uses.
4. Get the go-ahead. From your attorney, the trustee or the court, whichever your case calls for.
5. Deal with any lien. States handle a lender's lien differently. Some want it released before you sell, and others have the lienholder sign the title. Check your state's row below.
6. Then do the title step your state asks for, shown below.

Signing the title once the sale is cleared

When the sale is allowed, the paperwork is the same as any other private sale. Here is the step each state's own page or statute puts on the seller.

Once the buyer has the car, two loose ends remain: the plates, and whatever seller's report your state requires. After you sell sorts out both, state by state.

Fix it or sell it while the case is open

Start with the usual test. A repair bill bigger than the car's value once fixed is usually money lost (repair costs more than value).

Bankruptcy adds one more thing to weigh. A repair that raises the car's value also raises your equity. In chapter 7, equity above your exemption is exactly what the trustee is there to collect. A repair could turn a car you keep into an asset the trustee sells.

Selling makes sense when the car is dead, sitting, and still costing you insurance or storage, and when the people running your case have said yes. If they haven't, wait.

What this page doesn't cover

These points vary by court and state, and we haven't checked them here. Ask your attorney about each:

• Your court's local rules or standing orders on selling a vehicle in chapter 13.
• How much notice a sale needs, and how long it takes.
• Whether a chapter 7 trustee will let a low-value car go.
• Whether your state lets you use the federal exemption list.
• Whether scrapping a car worth less than its loan still needs approval.

Selling the car to us

We buy whole non-running and junk cars. You sell the whole car as it sits, and pickup is free anywhere in the US. Once your attorney or trustee says the sale can go ahead, have the title ready and follow your state's lien steps in the table above.

Questions about the car itself, not the case? Call (877) 421-6008.