Keeping your car in a bankruptcy

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News | by — April 18, 2012

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If I file a bankruptcy, will I be able to keep my car?

This is a very common question, and for good reason. We are largely a car-dependent society, relying on our automobiles for transportation to work, activities, and for errands.

What is the automobile exemption?

When you file a bankruptcy in Oregon, state exemptions are used to protect the things you own, including your car, from your creditors. The exemption for an automobile is $3,000 per person. If a married couple files a bankruptcy together, each individual gets a $3,000 exemption. These exemptions can be combined to protect $6,000 in one car, or can be divided to protect $3,000 each in two cars. The exemption amount, however, cannot be divided (i.e., $4,500 exemption applied to one car, and $1,500 applied to another).

Can I keep my car?

In a chapter 7 bankruptcy, an individual can keep his or her car if it has less than $3,000 in equity (the net difference between the value of the car, and the money owed on it, if any). In other words, if your car is worth $2,500, there is no risk of losing the car in the bankruptcy. Remember also that a couple can apply both exemptions to one car, so in the case of a joint petition, we can protect up to $6,000 in equity in one automobile.

What if my car is worth more than the exemption?

If your car is worth more than the $3,000 per person exemption, you have a few of options. First, you can agree to pay your bankruptcy estate the difference between the value of the car and your exemption. For example, if your car is worth $5,000, you have $2,000 of non-exempt equity after applying your exemption. Most bankruptcy trustees will allow you to pay the non-exempt portion over a period of 6-12 months. If you can afford to pay for the non-exempt equity in this time-frame, you can keep your car.

If you still wish to file a Chapter 7 bankruptcy, but cannot afford to pay the non-exempt over a period of 6-12 months, you can opt to give your car to your bankruptcy estate. Your estate would then sell your car, and pay to you the $3,000 exemption to which you are entitled.

If you cannot afford to pay for the non-exempt equity in 6-12 months, but wish to keep your car, you may be able to file a Chapter 13 bankruptcy.

Should I keep my car?

Bankruptcy is designed to give consumers overwhelmed with debt a fresh start, and it is possible to finance a different car immediately after a Chapter 7 bankruptcy. If you owe more money than your car is worth, or your monthly payments are not affordable, you should carefully consider whether you should voluntarily give your car back to the creditor during your bankruptcy.

If you are considering bankruptcy, contact the attorneys at Eblen Freed today to schedule a free consultation.

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