“Can I keep my vehicle if I file Chapter 7 bankruptcy?” I hear this question a lot. The answer depends upon the circumstances of each case. As a general rule, if you can pay for your vehicle, you can keep it.
Questions To Answer About Vehicle!
- What is the vehicle worth?
- What is the lien amount, if any, against the vehicle?
- What is the amount of equity, if any, in the vehicle?
- Can the equity can be exempted (protected)?
- Can the debtor pay any non-exempt equity to the Trustee?
The initial factor is how much the vehicle is worth. Here in Fort Myers and Southwest Florida the standard used is “replacement value”. Trade-in or wholesale value is used in our bankruptcy court. NADA and Kelly Blue Book can assist. Replacement value is the amount that you can get for the vehicle if it is sold in its current condition.
The next factor to consider is whether there is a lien against the vehicle or whether it is owned free and clear. In bankruptcy, the value of the vehicle is not considered without also taking into account the amount of any existing loan against the vehicle. What needs to be determined is whether there is any equity in the vehicle above the payoff of the loan.
If the loan against the vehicle is more than the value – meaning there is no equity in the vehicle – a debtor in bankruptcy can normally keep the vehicle as long as the debtor can pay the lender according to the normal loan terms. The creditor will normally send the lawyer a reaffirmation agreement, which is an agreement that provides that the debtor will remain responsible for making the payments despite the entry of the Chapter 7 discharge.
If the vehicle is worth more than the payoff balance on the loan – there’s equity in the vehicle – then the amount of the debtor’s exemptions must be evaluated. In bankruptcy creditors have the right to receive the value of the debtor’s non-exempt assets. Exemptions provided by state and federal law allow debtors to protect assets, such as equity in a vehicle.
Under Florida law a debtor may exempt $1,000.00 of equity in a vehicle in the debtor’s name. Depending upon whether the debtor is claiming a homestead the debtor may also exempt from $1,000.00 to $5,000.00 in personal property. Since a vehicle is personal property some or all of this exemption can be used.
Consider a bankruptcy hypothetical in which the debtor owns a vehicle worth $20,100.00 with a $17,000.00 lien and the debtor is claiming a homestead exemption and has $1,000.00 of household goods/furnishings. The debtor is entitled to exempt $1,000.00 in personal property and $1,000.00 of equity in a vehicle. In the example there is $3,000.00 of equity in the vehicle. An exemption of $1,000.00 is applied, thereby reducing the equity to $2,100.00.
As noted above, creditors have the right to receive the non-exempt value of the debtor’s assets. The normal protocol in Fort Myers is that the debtor, if he or she is keeping the vehicle, would enter into a buyback agreement with the Chapter 7 Trustee and pay the non-exempt equity over a period of up to 12 months. In this circumstance the debtor would continue making the payments to the vehicle lender, but would also pay 12 monthly payments of $175.00 to the Trustee to keep the vehicle.
The above is a basic example. Sometimes different exemptions can be used with may reduce or eliminate equity. If you’re contemplating bankruptcy and would like to discuss vehicle retention, exemptions or any other aspect of bankruptcy, give Bankruptcy Bodyguard, an affordable Fort Myers bankruptcy attorney, a call. We’ll sit down with you free of charge to go over your options. Telephone number is (239) 362-2755.
