Having a personal car is important because it determines whether or not you can get to work on time, take your children to school, complete important errands, and so on. In bankruptcy, there is a big chance that you may lose your car. But you may be able to “exempt” your car’s equity if your car payments are not current when you file for bankruptcy.
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Can You Keep Your Car After Bankruptcy?
Talk to an experienced bankruptcy lawyer to help you figure out if you can keep your car after filing for bankruptcy.
You Need To Calculate Your Car’s Equity
Calculating your car’s equity when filing for bankruptcy is important when filing for bankruptcy to know if you will get to keep the car or if you get some proceeds if the car is sold. You can calculate your car’s value in the following ways:
- Calculate your car’s value: Find out how much your car would sell for using websites such as KBB.com or NADA.com. Your car’s value may be higher than you think due to inflation and other reasons
- Deduct amount for the loan: Subtract the amount needed to pay the car loan in full if you are paying for the car
- Sales costs are irrelevant: Do not deduct the sales costs when calculating property value. The sales cost is only relevant for a Chapter 7 trustee when the trustee is considering selling the car.
- Calculate the car’s equity: You can exempt or shield some of your car’s equity from creditors. If the amount of equity in your car is more than the applicable exemptions, the Chapter 7 bankruptcy trustee may sell it. If the equity amount is lower than the applicable exemptions, then it is unlikely that the Chapter 7 trustee will sell it.
Find out the amount of your state’s motor vehicle exemption and wildcard exemption because you can use both exemptions when filing for bankruptcy. You can also check federal bankruptcy exemptions and use them if they serve your situation better.
Understanding Car Equity In Bankruptcy
Exempt equity is the equity you can protect from creditors while nonexempt equity is the portion that is not covered by an exemption. For example, if say John can exempt up to $4,000 of equity in a motor vehicle and he owns a truck worth $10,000 and owes the bank $7,000, that means that John’s equity is $3,000. You get this by subtracting $7,000 from $10,000.
Since the law allows him to exempt up to $4,000, that means that his equity in the truck is less than the $4,000 maximum. So, John will not lose his car if he files for bankruptcy.
Keeping Your Car In Chapter 7 And Chapter 13
Keeping your car in Chapter 7 or Chapter 13 is possible if you can exempt your car equity and are not making any car payments. You can keep your car if you are not behind in your car payments when you file for Chapter 7 or Chapter 13, and you can continue making payments even after filing for bankruptcy. Talk to an experienced bankruptcy lawyer to review your case and help you protect your car from creditors.