Bankruptcy Exemptions: What Property Can You Keep In Chapter 7 Bankruptcy
When you file for Chapter 7 bankruptcy, almost all of your property becomes property of the bankruptcy estate. That doesnt mean you lose everything. The purpose of bankruptcy is to provide people with a fresh startand part of that fresh start is keeping the things you need to hold down a household and job. Bankruptcy exemptions allow you to keep the things youll need to work and live, such as furniture, dishes, clothing, and a car.
How much property you can exempt differs depending on which state you live in because each state has a set of exemption laws .
Example. If you own a car worth $5,000 and your state allows a $6,000 car exemption, then you can keep your vehicle. However, if you live in a state that only allows a $2,000 car exemption , then the bankruptcy trustee may take your car and sell it. From the proceeds of the sale, the trustee will pay you the exemption amount of $2,000 and distribute the rest among your creditors.
Secured Car Loans And Leased Cars In Bankruptcy
First, if your car is security for a car loan, you can keep your car, but only if you continue making your car loan payments. This applies to both a car that is financed through a bank or other lender, or a car that is leased through an automotive finance company.
Before agreeing to continue making car payments, you should determine the value of the car, and the amount that remains owing on the loan. If there is significant negative equity, it may not be wise to keep the car.
For example, if you used your car as security for a $30,000 consolidation loan, and the car is only worth $5,000, it is not financially prudent to agree to pay $30,000 so that you can keep your $5,000 car. Unless the lender is willing to reduce the amount of the loan to more closely match the value of the car , it may be prudent to surrender the car to the lender when you file bankruptcy. The resulting shortfall is then included in your bankruptcy.
Bankruptcy Exemptions By State
To figure out if all of your property is safe, start by doing an inventory of your property. Next, use online sites like Realtor.com, Zillow.com, KBB.com, Nada.com, and eBay for replacement value estimates. You can even use Craigslist or Facebook Marketplace, but strive for accuracy and make copies of comparable listings. The trustee might require a professional appraisal for unique items.
Finally, select the exemption system that covers the property youd most like to keep if you have a choice between two .
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If You Have A Car Loanyou Keep The Car
Most of us tend to think then when you go bankrupt, you lose everything. In Canada, reality is often a little different. This reality begins with secured debts. If you pledged something as security for loan, the asset that provides collateral for the loan is exempt from bankruptcy. It survives bankruptcy. So if you have a car loan, and your car or truck is collateral for the loan and you file for bankruptcy, the loan and the vehicle are both kept out of the bankruptcy.
If you want to get out of your car loan, you would need to make arrangements to sell the vehicle with the lender or finance company that holds the loan. When the vehicle is sold, the proceeds would be used to pay off the loan.
If the vehicle sells for less than the loan amount, you would still owe the remaining balance. However, this outstanding balance would then be an unsecured debt and could be included in your bankruptcy if all this transpired before you declare bankruptcy.
How To Keep Your House When Filing Bankruptcy
Your home represents your most important personal and financial asset. If you find you are in serious financial trouble, you may wonder what you can do to keep your house if you file for bankruptcy. The U.S. Bankruptcy Code provides a process that may permit you to keep your house when you file for bankruptcy protection.
1
Request a bankruptcy petition packet from the clerk of the bankruptcy court. The packet includes the petition for bankruptcy and associated schedules, as well as instructions for completing these forms. These forms are available from office of the clerk as well as online from the bankruptcy court website.
2
Complete the petition, making certain to include your house as an asset.
3
List your house as an exempt asset on the exemptions schedule. Although bankruptcy is a federal case, many states have homestead exemptions that protect the homeowner. In California, your house is exempt property pursuant to the states homestead exemption. The bankruptcy form instructions include the specific parameters of the homestead exemption in your state. In California, equity up to $75,000 in your home is generally exempt if you are under 65 years of age, $150,000 if you are over that age, according to the California Code of Civil Procedure Section 704.730.
4
File the bankruptcy petition and schedules with the bankruptcy court clerk. Pay the filing fee.
5
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Calculating Your Equity In Your Car
In simple terms, the equity in your vehicle represents the portion of the cars value that belongs to you. You can determine it by subtracting how much you owe the lender from its current fair market value .
For example, if the current car is worth $5,000. If you own the car outright and do not have any loan balance, then you have 100% equity in it. Your equity is equal to the fair market value which is $5,000.
If you have an auto loan balance and you still owe the car lender a total of $2,000, then you have to subtract that from the current value of $5,000. That leaves you with an equity of $3,000.
Scenario 1: 100% Equity or Lower than MVE
In this scenario, you can keep the car as long as its value is below the exemption amount. Lets say you have 100% equity and the FMV of your car is $3,000. If the motor vehicle exemption in your state is $4,000, then you can keep it.
Scenario 2: 100% Equity or Higher than MVE
The answer to whether you can keep your vehicle in bankruptcy will depend on how much higher your equity is compared to the motor vehicle exemption. Here are 3 sample scenarios that could happen when you filed for bankruptcy:
A. You have 100% equity and the FMV of your car is $15,000. If the MVE in your state is $4,000, then the remaining $11,000 is not protected. If this is so, the bankruptcy trustee sells your car and pays you $4,000 back. They will use $11,000 from the sales proceeds to pay your other debts and pay the cost of selling the vehicle.
Can I Keep My Car If I File For Chapter 7 Bankruptcy
If you find yourself in a place where bankruptcy is the only way forward, you might wonder how the process will affect your personal belongings.An especially common concern is whether youll be able to keep your car. Here we will discuss the variables that come into play along with some smart steps and strategies tohelp you keep your car when filing for Chapter 7 bankruptcy.
Chapter 7 Bankruptcy and Your Car
One key element that will affect the outcome is how much equity you hold in your car. To determine equity you first need to know yourvehicles value, less any outstanding debt. This term will come up again and again, so its good to know.
Understanding the basic premise of a Chapter 7 bankruptcy filing is also important. Chapter 7 filings are often referred to as liquidationbecause property and assets can be sold to pay off debt. But because this could mean a serious hardship for you when you are already in a tough spot, exemptions often allow you tokeep some personal property. For example, the Ohio Chapter 7 car exemption of $4,000 can be used to offset equity, and the Ohio wildcard exemption of $1,325 could also beapplied.
Can I File Chapter 7 Bankruptcy and Keep My Car Loan?
Can I File Chapter 7 Bankruptcy and Keep My Leased Car?
Rely on Your Local Bankruptcy Lawyers
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Contact Our Bankruptcy Lawyers In Nevada
Are you thinking about filing for bankruptcy? Are you worried about keeping your vehicle? Our Las Vegas bankruptcy attorneys can help. We can help you understand what you can do to keep your car, and we can help you take the right steps to save your vehicle from bankruptcy. Call us today to begin working on your case.
How Does Bankruptcy Affect Your House
About 1 in 4 people who filed bankruptcy with Hoyes, Michalos own a house. In all cases we can show you how to keep your house, even if you decide to claim bankruptcy.
There are options to keep your home in a bankruptcy but the best approach depends on the value of the house, the amount owing on the mortgage, and your household budget. We will focus on three possible options:
How to claim bankruptcy and keep your house
Under Ontario law, if the equity in your home does not exceed $10,000, all you need to do to keep your home is maintain the mortgage payments. Your mortgage lender cannot foreclose on your home just because you went bankrupt. Some other provinces have similar exemptions that allow you to keep a certain equity in your house, you can research other Canada laws around bankruptcy and home equity here.
But what if the equity in your home exceeds $10,000?
Should you declare bankruptcy while your house is worth more than $10,000 above the mortgage and you want to keep your home, you will need to pay the bankruptcy trustee the equivalent of any equity value in your home.
Your Licensed Insolvency Trustee will advise you to get an appraisal on your house as part of the assessment process in order to determine just how much equity there might be. If you can afford to buy out this equity, bankruptcy can still be a solution to eliminating your other debts.
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What Is Exemption Planning
Exemption planning is the practice of organizing your financial affairs in a way that maximizes your exemptions and allows you to protect the most amount of property in bankruptcy. Converting nonexempt property into exempt assets can be part of exemption planning. However, if you engage in excessive exemption planning, it can be considered bankruptcy fraud and result in criminal prosecution or an objection to your bankruptcy dischargethe order that erases qualifying debt.
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State Law Vs Federal Law
We live in a federal republic. There are 50 states with their own set of laws. Bankruptcy laws are federal. State and Federal laws determine different things. Bankruptcy laws determine whether or not you can break your promise to repay debt. State law determines who has the right to own property.
For example, state law determines whose name is on the title to your car. Bankruptcy law determines whether or not you have to pay your car note.
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File A Consumer Proposal To Keep Your Car And Other Assets
A consumer proposal is not a bankruptcy. In a proposal you make a settlement offer to repay a portion of your debts. Any offer you make is affected by assets you own that are not exempt in a bankruptcy. However, in a consumer proposal, you keep all your assets, including your car and your home.
A proposal may make more sense if you:
- Own multiple vehicles
- Own a car or truck worth more than the allowable limit
- Can afford to make a settlement offer to your creditors.
If you are struggling with debt, know that you dont lose everything when you claim bankruptcy. Book a free, no-obligation consultation with one of our Ontario Licensed Insolvency Trustees to explore your options.
Keeping A Car Thats Not Paid Off
First, if youâre close to having it paid off, there is a good chance you have at least a little bit of equity in the car. In this context, equity is calculated by subtracting the current loan balance from the carâs value. As long as the equity is less than the exemption amount , your bankruptcy trustee canât touch your car.
About your car loan
Chapter 7 bankruptcy is not a way to get a free car. If youâre still making payments on a car loan, you havenât paid for your car yet and the only way to keep the car is to pay for it.
Redeem the car by paying only how much itâs actually worth
One way to do this is through a redemption, where you pay for the car’s current value in a single payment, no matter how much you owe. If that sounds like an option for you, here’s where you can learn more about how to redeem your car.
Is paying a lump sum to redeem your car not possible? You have other options!
If you’re like most, you probably don’t have access to that kind of money right after your bankruptcy filing. That is where reaffirmation agreements come in.
Reaffirmation Agreement Basics
A reaffirmation agreement allows a bankruptcy filer to keep their car by preventing the car loan from being discharged. They exist, in large part, to protect banks and credit unions after a Chapter 7 bankruptcy. Here are some details about the process of reaffirming a car loan.
If you were facing repossession, a reaffirmation may not be the way to go
Keep the car, keep the debt
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Are There Any Other Options
Yes, there may be, depending on your individual situation. In Florida, an individual filer is entitled to at least $1,000 personal property exemption. Or, if the filer does not use the Homestead Exemption, , then the filer is entitled to a $4,000 personal property exemption. The personal property exemption is normally used to exempt clothing, furniture, electronics, and other property. Often there is some personal property exemption that is not used and is available to apply to car equity. Particularly in cases where the filer does not claim homestead exemption. To illustrate, a single filer that owns a car worth $3,000 and does not own a home and is eligible for the $4,000 personal property exemption can use the $1,000 car exemption and $2,000 of personal property exemption, thus exempting the car altogether from the bankruptcy estate.
Show You Have Sufficient Income
Using the Chapter 13 plan to catch up on your arrearages will only work if you have the income to make both your regular monthly mortgage payment and your plan payment while youre in bankruptcy.
Once youre in Chapter 13, the mortgage holder cant foreclose if youre paying your house and plan payments on time and keeping to your mortgage terms, like ensuring that you have homeowners insurance in place.
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Rebuild Your Credit Score
If you have a good amount of loans that have survived your bankruptcy, make sure you pay them off as soon as possible. Get a secured credit card, which involves a cash deposit, frequently used to help people rehabilitate their credit. Your credit rating will increase if you make minimum payments on time and keep the account balance on the secured card below the credit limit. Before attempting to buy a car on credit, continue in this manner for at least a year.
Does It Depend On The Type Of Bankruptcy
The type of bankruptcy you go with will significantly affect what happens to your car. If you file for Chapter 7, youll be able to keep your vehicle as long as local bankruptcy laws exempt all your equity and youre up to date on your loan payments.
To figure out how much equity you have in your car, take your loan balance and subtract it from the value of your car. Note that if youre close to the end of your term, you may not have a lot of equity as vehicles depreciate quickly.
After you know how much equity you have, find the motor vehicle exemption in your state. If you have less equity than the exemption limit, you shouldnt have any issues keeping your car. Because Chapter 13 involves a debt repayment plan and doesnt liquidate assets to repay creditors, your property wont be sold. This means if you own your car, it will likely be yours to keep.
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Keeping A Car You Own Free And Clear
If you own your car free and clear, the next question you have to answer is âhow much is my car worth?â The answer – the carâs fair market value – determines whether you risk losing the car in a bankruptcy.
How much is your car worth?
If you sold your car today, as is, whatâs the most someone would pay you for it? Thatâs the value that matters. It doesnât matter how much the car cost when you bought it⦠thatâs old news. If youâve had your car for a few years, itâs no longer in the same condition as when you bought it. How much it cost then doesnât tell you how much itâs worth today.
It also doesnât matter how much you ended up paying for it by the time the car loan was finally paid off. That amount includes the interest you paid and depending on the interest rate on your auto loan, that can be quite a bit more than the car was ever worth.
Find out how much you can protect with an exemption
Filing a bankruptcy case is meant to give you a fresh start. Bankruptcy exemptions exist to make sure everyone filing a bankruptcy case can keep their most basic possessions. Depending on the state youâre filing in, and how long youâve been there, you may be able to choose between the federal bankruptcy exemptions and the exemptions granted by your state law.
Getting additional protection by claiming a wildcard exemption
What if my carâs fair market value is greater than the exemption amount?
Chapter 13 bankruptcy can help, too!
