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While filing for Chapter 7 bankruptcy, you can protect some equity in your vehicle (car, van, truck, motorcycle, etc.) through vehicle exemption. If there is enough equity, you might be able to keep your car even after the bankruptcy filing. This is possible through the motor vehicle exemption that is available in both state and federal bankruptcy law.
According to motor vehicle exemption, bankruptcy filers are allowed certain equity in the motor vehicle when they file for chapter 7 bankruptcy. While some states allow you to choose between state and federal exemptions, there are others that allow you to use only state exemptions.If you wish to keep your car while filing for bankruptcy, you need to know its worth, the amount you owe on it, and the motor vehicle exemption allowed to you.
Motor vehicle exemption if you do not have a car loan
In case you do not have any car loan, the entire value of the car is its equity. For you to keep the car, the entire or most of the equity must be exempted. If that is not the case, the trustee has the right to determine whether the non-exempt equity is enough to liquidate the vehicle or not. In case the vehicle is liquidated, the trustee must pay the entire exempted amount to you.
If the motor vehicle equity allowed in your state is $3,500, and your vehicle is worth $3,000, the trustee cannot sell your car. However, if the car is worth $ 10,000; the non-exempt equity is worth $6,500. You can either pay that amount and keep your car or the trustee can sell it and pay you the equity, while the remaining amount is paid to your unsecured creditors after deducting the cost of sale. If your vehicle is worth $4,000, then the trustee might not sell the vehicle since there will not be much equity left for creditors after paying you the exemption and deducting the cost of sale.
Motor vehicle exemption if you have a car loan
The rules are the same, but since you owe money on the car, the equity amount is reduced because of the loan. If your car has a value of $10,000 but you owe $ 7,500 in the loan, then your equity in the car will be worth $2,500 only. If the state allows an exemption of $3,500, you can keep the equity of your car. However, if you owe $12,000 in the loan amount, there is no equity left in the vehicle and therefore, you do not need an exemption to protect it say lawyers of Dallas law firm (https://www.recoverylawgroup.com/bankruptcy/).
Though your vehicle will not be sold by the trustee, you still need to pay the loan on your vehicle if you wish to keep it. Call (888-297-6203) to hire experienced bankruptcy lawyers to protect your car from repossession by car loan lenders.