Can I Keep My Car If I File Bankruptcy? Part 1- Equity.

Most likely, yes. As a bankruptcy lawyer in Asheville I talk with people in WNC about debt relief and bankruptcy every day. A common concern I hear is whether people will be able to keep their cars.

Now, before I go on to discuss how most people are able to keep their vehicles in bankruptcy, I do need to dispel a common myth, namely that if you need your vehicle to get to work, see the doctor, etc., you can keep it. A lot of people think that “needing” a vehicle means that they are entitled to keep one. This may make common sense; unfortunately, it isn’t the law in NC.

There are several issues to consider when someone wants to retain a vehicle in a ch7 bankruptcy. The first is whether they have any equity in the vehicle.

“Equity” is simply the difference between the value of the vehicle and the amount owed on it. For instance, if your vehicle is worth $10,000 and you owe the bank $7500 then you have $2500 in equity. In NC a person filing bankruptcy is entitled to protect (or “exempt” to use the technical term) up to $3500 in equity in his or her vehicle. Additionally, in certain cases, a person may be able to exempt up to an additional $5000 by using the “wildcard” exemption. This means that, at most, you can exempt up to $8500 in equity in your vehicle. (Note: Not everyone is able to use the wildcard exemption for a vehicle.)

For instance, if your vehicle is worth $15,000 and you owe $12,000 on it to the bank, then you will be able to protect your vehicle from being sold by the bankruptcy Trustee by using the vehicle exemption. If, however, you own your $15,000 vehicle outright then the bankruptcy Trustee will sell it in your ch7 bankruptcy case and give you the difference between the total amount of the sale price and the amount you can exempt ($3500 by using the vehicle exemption and up to an additional $5000 if you are able to use the wildcard exemption).

A good bankruptcy attorney will help you identify a good strategy for protecting your rights. There are multiple options available to someone with lots of equity in a vehicle. Options may include: filing ch13, which doesn’t require you to sell your vehicle; selling your vehicle prior to filing bankruptcy; “purchasing” your vehicle from the Trustee; etc. Each case is different, and the advice you receive will depend on your particular circumstances.

As a WNC bankruptcy attorney I take care to provide as many options as possible to my clients facing debt problems. Call us today to get your bankruptcy questions answered in a personal, caring, and confidential manner.