Our office conducts many free bankruptcy consultations each day. By a very large margin, the most common question we get is:
“Will I Lose My Car If I File Bankruptcy?”
The short answer is no, you will not lose your car. In fact, I don’t remember a single case we’ve done where a debtor’s car was taken by a Chapter 7 Bankruptcy Trustee. So rest easy and don’t worry about losing your car. As long as you keep paying for your car, you can keep it.
The longer answer follows. When a person files for bankruptcy, all property (including cars) become property of the bankruptcy estate. Bankruptcy exemptions are used to protect a person’s interest in their property.
In bankruptcy, we protect a person’s equity in their car. If there is no equity (owe more than it is worth), then the car has no value to the bankruptcy estate and there is no need to even use a bankruptcy exemption.
Moreover, a leased car has no value to a bankruptcy estate. There is no ownership interest in the car. With the gaining popularity of car leases, it frees up more bankruptcy exemption for your other car or possibly other property.
Most people who file bankruptcy have no equity or very little equity in their cars. It is not unusual for car loans to last 7 years, offsetting most of the value in the car. And since cars that have been paid off are typically now more than 7+ years old, they have very little value.
California has many bankruptcy exemptions to protect your car. The bankruptcy exemptions for cars in California are as follows:
$3,050.00 (car exemption)
$5,350.00 (car exemption)
$28,225 (wildcard exemption – can be used for any property, including cars)
In the vast majority of cases, people are able to file Chapter 7 bankruptcy and keep their cars because the value (or equity) in their cars are below the exemptions set forth above.
However, in the event there is unprotected equity in a car, or any other property, a Chapter 13 bankruptcy is usually the better choice. Chapter 13 bankruptcy allows you to keep your un-exempt property but requires you to complete a payment plan which is administered by the Chapter 13 Bankruptcy Trustee. The payment plan could require you to pay back as little as 1% (sometimes even less) of your unsecured creditors OR as much as 100%, depending on factors used to determine the correct payment terms.
In conclusion, don’t worry about losing your car. Call our office and schedule a free initial consultation with a bankruptcy attorney.