What If My Car Is Worth More Than The Exemption In A Chapter 7 Bankruptcy?

20 May What If My Car Is Worth More Than The Exemption In A Chapter 7 Bankruptcy?

Bankruptcylaw 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 but subject to change from time to time), then you can keep a car worth that amount or less if you file a case under a Chapter 7bankruptcy.

So what do you do if you are a debtor and youhave to file bankruptcy but your car is worth more than the exemption? In myexample, what ifyour car is worth $4000?

In some cases, you may be over your car exemption, but you might be able to add to that by using another available exemption. In some instances, 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 whatever available exemption you have, then you either have to allow the trustee in bankruptcy to sell the car to get the overage to pay into your bankruptcy estate, or you will need to 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. You will get exemption, but anything over that goes to the estate.

In many cases the trustee will negotiate a lesser amount with you 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 might negotiate with the trustee to pay something less than the actual difference.

The other option is to file a Chapter 13 to protect the car, and to make payments over time.

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Douglas Jacobs is a California bankruptcy attorney and partner in the Chico law firm of Jacobs, Anderson, Potter & Chaplin. Since 1988, Mr. Jacobs has taught Constitutional law and Debtor-Creditor/Bankruptcy law at the Cal Northern School of Law. He has served as Dean of Students since 1994. He is a frequent lecturer on the subject of consumer bankruptcy law, and has spoken at both state and national levels.
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