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Protect Your Vehicle in a Chapter 7 Bankruptcy

Protect Your Vehicle in a Chapter 7 Bankruptcy: Exemptions and Using Your Car Equity

If you file for Chapter 7 bankruptcy, you'll want to protect your vehicle at all costs, especially if it's the only one you have for transportation. And you can do this by using certain exemptions that are applicable to your assets that could be sold to pay off debts. But you have the little secret of equity in your car, which depends solely on the use of federal or state bankruptcy rules.

Determining Your Equity

If the equity in your car can be exempt in a Chapter 7 bankruptcy case, you'll be able to keep your vehicle. How you determine that, though, can get somewhat complicated. You first should know that if you still have a car loan out and you're behind in payments, none of this will matter. Your car will probably be taken away by the trustee. But before you can even determine whether your equity can be exempt, you have to determine what kind of equity you have in the car, if any at all.

You can get a quick general assessment of your car equity by subtracting the amount that your car is worth with the amount left on your loan. If you get a number falling below the car's worth, then you'll be able to keep the car automatically. That's because you have no equity and makes the car impossible to sell if a trustee takes it. However, a lender might still repossess your vehicle.

Federal and State Exemptions

You automatically get a $3,675 equity exemption from federal bankruptcy rules, and that could possibly be substantial enough to allow you to keep your car. Individual states, though, have their own exemption amounts that can either be equal, more, or even less, depending on where you live.

Work with your bankruptcy lawyer to determine whether taking the federal law or a state exemption law would be the most beneficial to you. Exemptions for each state are available online so you can gain a better picture even before you file bankruptcy.

Ultimately, if all of your equity is covered by the exemption, you have nothing to worry about. If you happen to have equity that's not exempt, you might still be able to protect your vehicle if you pay the trustee the amount of equity that isn't protected. This could be problematic if you don't have enough money to pay. Even so, it proves that the chances of keeping your car far outweigh any chance of it being taken away if a car loan is already paid.

Keep in mind that most state bankruptcy laws also have wild card exemptions that can add even more protection for your car. In some states, this is also known as a homestead exemption.

You're going to need a good bankruptcy lawyer to help you navigate all these steps and for your other property. Turn to the Law Offices of James C. Shields as a highly experienced and qualified team who can help you through bankruptcy. Representing Southern California, we also deal in probates and estate planning to help give you peace of mind during personally complicated times.

Contact us if you feel you need to file for bankruptcy, and we'll help you step by step through the process, including assessing if you're likely to keep your car.