Keeping your vehicle when you file for Chapter 7 bankruptcy is a major concern for most people. There is often the impression that when you file for bankruptcy, it will require that you give up your vehicle or turn it over to the loan company that you were making payments to. In most California bankruptcy cases the ability to keep your vehicle can be accomplished in a number of ways.
Vehicles That Are Paid in Full or Have Equity
First there are those vehicles that are paid in full and therefore have equity in them or those vehicles that have equity above what is owed on them. The concern for many people is that these vehicles will be taken by the court to pay off your creditors.
In California, there are two bankruptcy exemptions that can be utilized to protect the value of paid in full vehicles or vehicles that have equity in them. Creditors are not entitled to liquidate assets that are exempt under these California bankruptcy exemptions. When you file for bankruptcy you are entitled to select either 703 or 704 bankruptcy exemptions.
Under 703 California Bankruptcy Exemptions
Example-If your vehicles is a 2007 Honda Accord that is paid in full and worth $7,000 you could utilize the vehicle exemption to protect a portion of the equity and protect the remaining $3,475 using the wild card exemption.
It is important that you consult with an experienced bankruptcy attorney to protect your assets, since the availability of the wild card exemption is based on the assumption that there is no equity to protect in a home.
Under 704 California Bankruptcy Exemptions-This set of exemptions are generally only selected when there is substantial equity in a home to protect. Under these exemptions they offer the ability to protect anywhere from $75,000 to $175,000 in equity in the home you reside in, depending on your age and income.
- Vehicle Exemption- The motor vehicle exemption allows you to protect $3,525 in equity in a vehicle. This exemption can be used on one vehicle and cannot be divided between two vehicles.
- Wild Card Exemption- The wildcard exemptions allows you to protect $23, 250 in any asset you select. This amount can be used to protect any assets up to the stated amount. If your vehicle has more equity than what the vehicle exemption protects then you can utilize the wildcard exemption to protect the remaining equity in the vehicle.
- Tools of the Trade- If your vehicle is used for your business or trade then you may also able to utilize the tools of the trade exemption of $2,200.
- Motor Vehicle Exemption- You can protect equity in vehicles in the total amount of $2,725 under the motor vehicle exemption if you select section 704. This exemption can be divided among more than one vehicle unlike the car exemption in 703.
- Tools of the Trade- Allows you to exempt a commercial vehicle in the amount of $7,175 if it is reasonably necessary and actually used in the business, trade, or profession by which you earn a living.
Vehicles With No Equity
If your vehicle has a loan against it and is upside down then generally you will be allowed to keep your vehicle as long as you continue to keep current on your vehicle payments. The car loan company may require that you sign a reaffirmation agreement during your bankruptcy in order to keep your car.
The reaffirmation agreement makes you personally liable for repaying the loan against the vehicle even after bankruptcy. This means that if you fail to make the payments on the vehicle and it is repossessed after your bankruptcy case, then the vehicle company can seek a deficiency against you for any remaining balance owed on the loan.
It is important that before you file for bankruptcy you meet with an experienced California bankruptcy attorney to determine whether your cars can be protected from creditor action when you file for bankruptcy.