Do I get to keep my car if I file for bankruptcy?

Do you get to keep your car if you file a chapter 7 bankruptcy? Short answer: in most instances the answer is absolutely. The bankruptcy filing will have no impact on your ability to keep your car.

And now for the longer answer. When you are thinking about your car and chapter 7 bankruptcy there are two key players to keep in mind. The first would be the chapter 7 trustee and the second would be the bank that financed your car. In this article I will focus on the chapter 7 trustee and in my next blog article I will turn my attention to the banks and their pesky Reaffirmation Agreements that everyone keeps wondering about.

The chapter 7 trustee is interested basically in only one thing…assets. As in, is there property that you own that has some significant value and that is not protected by certain bankruptcy exemptions?

So, for those who own their car and are no longer making payments on their vehicle the million dollar question becomes: How much is the car worth? What is its current value? You can go to a site like to find out. Once you have figured out how much the car is currently worth you now have to know your state’s bankruptcy exemption laws. In the Commonwealth of Virginia (by the way, if someone can remind me why Virginia is considered a Commonwealth instead of a state I would appreciate it) for instance the permitted amount that you are allowed to exempt for your motor vehicle is $6,000.00. If your car is paid off then chances are it is at least five years old and since the car has depreciated in value so much the $6,000.00 exemption will cover you.

But what if you own a BMW or a Mercedez Benz that’s clearly worth more than $6,000? Before you despair just remember that Virginia also has what is called a Homestead Deed, or as I prefer to call it, a Homestead Exemption. And what does the Homestead Deed do for your? Well, in short, it is an additional bankruptcy exemption. The Homestead Deed is a once in a lifetime exemption that you can use with a maximum value of $5,000 (plus $500 for each dependent that you have). The exemption is increased to $10,000.00 if you are 65 or older or are disabled. So even if you are driving one of them “fancy cars”, between the $6,000 car exemption and the Homestead Exemption you should be covered.

And what if your car is financed and not paid off yet? Well, the odds at that point of you having any equity in the car are slim to none. And even if you do have a bit of equity the bankruptcy exemptions will protect you.

So there you have it. If one of your top concerns is “what will happen to my car if I file for bankruptcy” chances are you have nothing to worry about.

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