Will selling my vehicle for the loan balance affect future bankruptcy in TN?

Question

I have a vehicle that I'm still making payments on, with about 3 years left on the loan. I owe the fair market value of the vehicle. I have a friend who is willing to pay it off so I can get out from under the payments. I also have significant credit card debt, and I'm retired living on Social Security only. If I sell the vehicle to my friend for what is owed on the loan, will that hurt me in the future if I have to file for bankruptcy?

James L. Arrasmith · Answer

If you sell your vehicle to your friend for the exact amount of the loan balance, that generally is considered a fair market value transaction. In bankruptcy, the court usually looks for situations where property was sold for much less than it was worth, because that can be treated as hiding assets. Since you owe about what the car is worth and your friend would simply be paying off the loan, that does not usually raise red flags. 
 
What may matter is timing. If you sell the car and then file bankruptcy right afterward, the trustee could still review the transaction. However, because it is not a “sweetheart deal” at a loss, it is less likely to be challenged. The trustee’s main concern is whether you disposed of assets that could have been used to pay creditors. Here, the sale simply removes both the car and the debt tied to it. 
 
Since you are retired and living on Social Security, much of your income may already be protected in bankruptcy. Selling the car may help reduce financial pressure and should not harm your position if you later need to file. Still, it is always best to keep records of the sale and proof that your friend paid only the balance due. This transparency helps if questions come up later.

Q: Will selling my vehicle for the loan balance affect future bankruptcy in TN?