Chapter 7 bankruptcy is sometimes also called "liquidation bankruptcy," which may lead you to believe all of your assets will be sold if you file. However, some assets are partially exempt, like work tools. Vehicles also fall into this category, so you may not have to kiss your car goodbye when you file for chapter 7 bankruptcy after all. However, you'll need to ask yourself a few questions before you can know for sure whether you'll be able to keep your vehicle.
Does Your Car's Value Exceed The Allowed Limit?
Not all cars are created equal, and this is reflected in the state exemption limits for vehicles. Rather than being able to exempt your vehicle wholly, you can exempt it up to a certain value. If its current value exceeds the state's limit, you may have to turn it over to your trustee for sale. If this happens, the trustee will have to pay you the value of the exemption once the car is sold before any of the proceeds can be used to pay your creditors.
Ironically, your debt may actually work in your favor if you hope to keep your vehicle. When a lien is placed against your car's title, the value of the debt is subtracted from the overall value of the vehicle for exemption calculating purposes. This means a $10,000 car with a $3,000 lien on it would only be considered to be worth $7,000 in actual value, and would be covered by any vehicle exemption with a limit of $7,000 or more.
Limits themselves vary widely based on where you live. Depending on your state, it can be incredibly easy or plain impossible to keep your car below the line. Kansas, for example, offers a heaping $20,000 exemption for a primary vehicle when you file for bankruptcy there. On the other hand, some states offer as little as $1,000 -- and several more have no dedicated vehicle exemption at all. Fortunately, these states usually offer you a wildcard exemption instead, which can come in handy...
Can You Use A Wildcard Exemption To Keep Your Car?
Wildcard exemptions provide an opportunity for people going through bankruptcy to retain a little more value in assets that might otherwise not be exempt. Like the vehicle exemption limit, the limit for wildcard exemptions will vary by state. Unlike the vehicle exemption, you can use a wildcard to protect any nonexempt asset, or you can add its value to a partially exempt asset -- like your car -- to make sure that it isn't sold.
Wildcard exemptions are most useful in states that already offer a limited vehicle exemption because they allow you to boost the value of your car that is protected from seizure. For example, if you have a vehicle exemption of $6,000 and a wildcard exemption of $3,000, you'll be able to ensure that a $9,000 car doesn't end up on the auction block by adding the two exemptions together.
In some cases, both exemptions may still not quite be enough to add up to the value of your vehicle. Fortunately, if only a small amount of your car's value is unprotected, you might not have to worry after all.
Is It Likely The Trustee Will Abandon Your Car?
Trustees can seize all nonexempt property for liquidation during a chapter 7 bankruptcy case, and that of course includes the additional nonexempt value that your car retains. However, in some cases, the trustee may choose to abandon your car, which means he or she will decide not to seize and sell it despite its unprotected status.
Typically, this happens because the remaining nonexempt value is too small to be worth the trustee's time. For an asset to be worth liquidating, it has to have enough value to account for storage and sale fees, the trustee's fee, and additional value to be paid out to your creditors. If your car has only a couple hundred dollars of nonexempt value, the trustee is likely to simply abandon it because the cost of seizing and selling it would be too great.
Going through bankruptcy is stressful, and the fear of losing your vehicle only adds to that stress. Nevertheless, with the help of bankruptcy experts, you may not have to be afraid of having your car seized after all. If you're considering filing for chapter 7 bankruptcy, consult with a specialized attorney from a site like http://www.howardgoodmanlaw.com/ to find out how you can arrange your exemptions and hopefully protect your vehicle.