Almost everyone that calls my office wants to know whether they can keep their car despite having filed for bankruptcy. The answer is almost always yes!
In a Chapter 7 Bankruptcy, also known as a liquidation, a debtor’s assets are subject to being taken by the Bankruptcy Trustee. However, in most consumer cases, this never happens. This is because California law allows debtors to retain a certain amount of their property. Lawyers refer to this as the “exemption” process.
What really matters when looking at cars and bankruptcy is the amount of equity in the car. For instance, if Kelly Blue Book on your car is $8,000, but the outstanding loan balance is $10,000, you don’t have any equity at all. This is because the car is encumbered by loans more than the value of the car. So if the Bankruptcy Trustee were to take your car and sell it on the market, the Trustee would actually lose money. In cases like this, there is no risk of losing the vehicle.
For debtors with equity in their car, there is good news too. Let’s say you own your car outright and Blue Book on the car is $3,500. Currently, California 703 exemptions allow you to exempt up to $5,100 of equity in your car. That means that $5,100 worth of car is yours to keep — the Bankruptcy Trustee can’t take it from you. So you’re covered here too!
Let’s take an extreme case. You own your car outright and it’s worth $15,100. The car exemption under 703 is only good for $5,100, so does that mean you lose your car? No! There is a “Wildcard” exemption that I can use to exempt the remaining $10,000 equity in the car. Because I can exempt all of that equity in your car, the Trustee can’t take it from you and sell it.
As you can see, there are many ways to keep your car in a Chapter 7 Bankruptcy when using California’s 703 exemptions. The key thing to remember is that it is important to carefully look at all of your property before you file bankruptcy. You must do this to apply your exemptions as needed. It’s not good enough to blunder into your case and clean up the mess afterwards. It might be too late.
If you have questions about how to keep your car in bankruptcy, please call my office at (916) 333-2222.