If you file for bankruptcy, do you have to give up your car? This is one of the two most commonly asked questions by potential bankruptcy petitioners, the other being about the loss of the house. In some cases, the bankruptcy has been postponed out of fear of this particular loss. Maybe you’ve never been late on a payment. Maybe you still owe money on your car, but you’ve worked hard to pay a big chunk of it off and you don’t want to see that go to waste. Some dismiss this type of fear as irrelevant in comparison to receiving the discharge of debt at the conclusion of a successful bankruptcy filing, but I tend to feel that if it’s important to the bankruptcy petitioner – it’s important. So we’ll run through some of the scenarios related to filing bankruptcy and keeping your car.
The first bankruptcy issue to be aware of if keeping your car is a major concern is the California Motor Vehicle Exemption. This helps to determine whether or not a bankruptcy petitioner can keep their vehicle when filing for Chapter 7 bankruptcy. This exemption will be a major factor in determining whether or not the vehicle can be used as an asset when the bankruptcy trustee is attempting to repay your unsecured creditors. If the equity in the bankruptcy filer’s car is less than that stated in the California car exemption, it cannot be sold by the trustee. If the vehicle’s equity is significantly more than the designated exemption amount, it’s likely that the bankruptcy trustee will sell the car to pay creditors.
There are two sets of exemptions in use in California bankruptcy courts: System 1 and System 2. Which one is used depends on which one applies better to the case at hand. In California Motor Vehicle Exemption System 1, the bankruptcy petitioner can exempt up to $2,900 of the equity in their vehicle. In California Motor Vehicle Exemption System 2, the bankruptcy petitioner can exempt up to $5,100 in equity in one or more cars.
If the vehicle in question holds equity above the maximum $5,100, bankruptcy petitioners may be able to utilize the Wildcard Exemption to cover the extra equity; which allows petitioners to exempt up to $1,350 of any property. Unused portions of the homestead or burial plot exemptions (up to $28,225) can also be applied towards other property, including a vehicle.
Of course, even after all the hoops have been jumped through according to bankruptcy law, the lender may repossess your car during or after bankruptcy if you are not current on the payments.
If you have additional questions regarding California vehicle exemptions when filing bankruptcy, please get in touch with one of the experienced southern California bankruptcy attorneys at Westgate Law.