One of the most common questions we receive from debtors who are potentially looking to file for Chapter 7 bankruptcy is whether they can keep a car. The quick and short answer is yes depending upon the facts of the particular bankruptcy case. When filing for Chapter 7 bankruptcy, there are bankruptcy exemptions debtors can use to protect equity in a motor vehicle. Here in New York, there are two sets of exemptions a debtor may choose from, the Federal exemptions in the Bankruptcy Code or the New York State exemptions. A debtor may choose one set of exemptions only. In order to determine whether a car’s equity is protected in bankruptcy, there are a couple pieces of information you will need to give your bankruptcy attorney. First, you will need to know your car’s fair market value. This can be determined by checking the Kelley Blue Book or the National Auto Dealers Association websites for the value. Then you will need to know the balance of the loan on the car, if any. By subtracting these two values, you will calculate the equity of your car. If you have a loan on the vehicle you are seeking to protect, you must continue making your payments on the loan, otherwise the lender may be able to repossess the vehicle.
The federal bankruptcy exemptions listed in the Bankruptcy Code allow every filer to protect one vehicle with a value of up to $4,450. If filing jointly, a married couple can protect two cars worth $4,450 each. See 11 USC 522(d)(2). The Bankruptcy Code also allows filers to take advantage of a wildcard exemption, which can be used to protect any property. See 11 USC 522(d)(5). If your car is worth more than the motor vehicle exemption, you may be able to protect the rest with the federal wildcard exemption. The federal wildcard exemption is $1,475 plus up to $13,950 of any unused amount of the homestead exemption (which adds up to $15,425). New York’s motor vehicle exemption of $4,550 is slightly higher than the federal exemption. See NY CPLR 5205 (a)(8). Unfortunately, New York does not have a generous wildcard exemption like the one contained in the federal exemptions.
If the chosen exemptions cover all the equity in your car, you can file for bankruptcy and protect your vehicle. However, if you have non-exempt equity in your vehicle in a Chapter 7 bankruptcy, the assigned Trustee can take an interest in your car. The Chapter 7 bankruptcy trustee can sell the car and use the sales proceeds to pay the claims of your creditors. In the alternative, if a debtor wishes to retain a vehicle with non-exempt equity, they may offer to pay the Trustee the value that would be received by such a sale. Typically, that would be done with a lump sum offer if the debtor has the financial ability to make sure an offer (maybe through the help of family or friends or access to money in a retirement account) or possibly negotiate a payment plan with the Trustee who may be agreeable to one.
If you have any questions about protecting assets in bankruptcy, please feel free to contact the Law Offices of David I. Pankin, P.C. We have over 25 years of experience helping debtors obtain a fresh start. Part of that fresh start involves protecting your exempt assets. Call (888) 529-9600 to arrange a free consultation or use our easy online contact form.
