What If My Car Is Worth More Than The Exemption In A Chapter 7 Bankruptcy?
By Douglas Jacobs, California Bankruptcy Attorney on May 20, 2007 in Bankruptcy Practice and Procedure, General Bankruptcy Information
Bankruptcy law entitles you to keep certain property that falls within the exemptions granted by the federal government or by your state. Check with local counsel as to what those exemptions are, as they vary from state to state.
The general principle, however, is that if your state’s exemption for a car, for example, is $3225 (the current federal exemption), then you can keep a car worth that amount or less in a chapter 7 bankruptcy.
So what do you do if you have to file bankruptcy and your car is worth $4000? In some cases, you can claim a “wildcard” exemption and exempt the rest of the vehicle. Again this depends upon which state you’re in and what exemptions you are using. In all cases, however, if the car is worth more than the exemption you either have to allow the trustee in bankruptcy to sell the car, or buy the nonexempt portion from the estate.
In our example above, where the car is worth $4000 but the exemption is only $3225, the trustee will take $775 to make up the difference. In many cases the trustee will negotiate a lesser amount because if he were to take the car and sell it he would have to pay the costs of sale and may not end up with the $4000 value. Under those circumstances, you can negotiate with the trustee to pay something less than the actual difference.
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