The fear of losing a car in bankruptcy is just one more myth about bankruptcy that continues to keep people in need, from finding out about their options. While not every Charlotte bankruptcy client of mine can keep their vehicle in a Chapter 7, the chance is extremely high that you can. If you can’t keep your car in a Chapter 7, we can always consider a Chapter 13 filing to accomplish the goal.
Federal And State Exemptions Explained
The bankruptcy code allows individuals and married couples to protect equity in one or more vehicles (one per person). Under 11 USC Section 522(d)(2), which is the Federal exemption, each filing individual can protect up to $2,400 in equity. The North Carolina exemption is more liberal and allows $3,500 in equity to be protected by each individual. Here’s the easy method for determining your equity in your vehicle:
Current Blue Book Value – Current Loan Balance = Equity
How This Works In Bankruptcy
Essentially, if you desire to keep you car and file bankruptcy, and if your equity is less than the allowable Federal or North Carolina exemption, we make that declaration on the bankruptcy petition and the car is excluded from the bankruptcy estate—the court can’t touch it.
You continue to make your monthly car payments and drive your car, while you move forward with the bankruptcy case.
What If I Have Too Much Equity?
If your equity in the car exceeds the exemptions, there are other options. Namely, we can use what is commonly known as the “Wild Card” exemption of $5,000 and apply it to cover the extra equity, giving us the same result above. Often, when the vehicle is used regularly as part of employment, we can use the “Tools of the Trade” exemption as well, which is currently a $2,000 exemption. So in all, you have up to $11,500 in exemptions that can potentially apply to cover the equity in your vehicle.
Can I Buy A Car Before Bankruptcy?
Yes, you can purchase a vehicle or refinance a vehicle prior to filing bankruptcy. The transaction needs to be disclosed to the court, but as long as you don’t have too much equity in the new vehicle—and most new vehicles don’t, because the purchase price is usually close to the new loan amount—then you’ll get the same result.
Jointly Owned Vehicles
Determining who is on title to the vehicle determines who has the ability to use the exemption. For vehicles jointly owned, the exemption doubles; however, each debtor can apply the exemption to one vehicle only. Proper planning with your Charlotte bankruptcy attorney will insure the best result.
If you’d like to speak with an attorney today about your options, or just have general questions, please call me. That’s part of my job and the call is free. 704.749.7747