If I File Bankruptcy, Will I Lose My Paid-For Car (or anything else)?

by Karen Oakes, Esq.

February 13, 2007

When you file  bankruptcy, whether you file under Chapter 7 of the Bankruptcy Code or Chapter 13, you must provide a list of your property to the bankruptcy court.

Under the Bankruptcy Code and exemption laws of the states, each person is entitled to keep up to a certain value for each kind of property.  Each state’s exemption laws are very very different and the U. S. Bankruptcy Code is different from them all.

There are some types of property that some states provide protection for but others may not.  It has to do with what the lawmakers of that state see as important enough to establish state laws to protect it from creditors in debt collection.   Some states allow large homestead exemptions, while others don’t.  Some have special exemptions for particular property like retirement accounts, animals, firearms, oil/gas, etc.

Some exemptions are purely a value and dollar limit, while some exemptions may be based upon use or need.   However the law will set out if dollar, use/need controls, and you have to follow what the law says.

Since I live and practice law in Oregon, I will give you an example from my state.

Suppose you lived in Oregon and you have a car worth about $5000 and there is no lien (secured debt = a loan of any kind secured by the title to the car).  Under Oregon law, you are entitled to “exempt”, or protect and keep, $2100 worth of equity in a car.

That means that you have about $2900 in “non-exempt” equity in the car – you are NOT entitled to keep it.  If you were in Oregon, you would have a choice:  (1) either pay the trustee for the non-exempt equity in the car or (2) Give up the car.  Not surprisingly, most people are not happy with either of those choices.

Under a Chapter 7 case, you would have to pay the trustee quickly (usually a chapter 7 case is open for just a short time).   You can keep the property, and the creditors get the value that is over your exempt amount.

Under a Chapter 13 case, you can pay over time by making payments to the trustee over 36 to 60 months.   The creditors get paid for the non-exempt equity, but you get more time to pay it off.

The same rule applies for other property that is either over the exemption amount allowed, or if it just doesn’t fit into any exemption.

An attorney can guide you through bankruptcy pre-planning on how to make the most of the exemptions to which you are entitled.

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I'm a consumer protection lawyer in Oregon, working with people in Klamath; Lake; Jackson; Josephine; Curry; and Deschutes County. I speak regularly on bankruptcy and consumer protection issues nationwide.

Last modified: February 23, 2012