Can I keep my car in bankruptcy?
Certain “exemptions” were created in the bankruptcy law to allow you to keep some reasonable amount of possessions. A lot of people worry that they will lose everything if they file for bankruptcy, but that is not the case. The exemptions allow you to protect or exempt property – including your car.
If you fully own a car, you can claim a certain amount of its equity as exempt. Most times, your other creditors will not seek to have the car sold to pay off your debt to them. If you are able to protect all the equity in your car, then you will be able to keep it. You can also keep your car even where there is a small or non exempt equity, because the car won’t be worth selling. It is important to figure how much your car is worth because you will be asked to report the current market value of the car in your bankruptcy filing.
On the other hand, if you owe more on the car than it’s worth, or if you simply don’t want to keep paying for the car, you have the option to give it back and declare any remaining amounts owed on the loan in the bankruptcy.[/vc_column_text]
How to know the amount of equity you have in your car
You can look up the value of the car online with any number of websites that provide that. From there, you’ll use the value to establish the amount of equity it has. Here is an example of how it works:
- If you own your vehicle fully, and no longer making more loan payments for it. Then, the equity in your car will be the same as the current car’s market value. Meaning if your car would sell for $4,000, then its equity is also $4,000.
- If you have a car loan, then the equity is the amount you are left with after you might sell the car and fully pay off the loan balance. So, if you the market value is $12000 and you have a loan balance of $7000, your equity will be the amount left over, which in this case would be $5,000.
If the exemption under the bankruptcy laws covers the amount of your equity or more (in California the amount of exemption is $3,525), then your trustee can’t sell your car to pay off other debt. In most cases, however, even if the equity is more than that, the trustee would rarely take the time-consuming and wasteful step of requiring you to sell the car to pay off debt – unless of course you own more than one car or it’s a very valuable collectible, etc.
If you are filing for bankruptcy, have a car loan, and want to keep your car, your loan will need to current and you will be required to continue making payments. Keeping up with loan payments will also help improve your credit score after the bankruptcy.
Most people who file for Chapter 7 bankruptcy usually end up keeping their car. Prior to filing for bankruptcy, it is very important to figure out the type of exemptions that will apply to all types of your property, including your car.
If you need any help filing for bankruptcy, we are here to walk you through the process. Contact us today to see if we can help you take the next step.