June 24, 2019

Keep Your Car After Bankruptcy

Most people keep their cars after bankruptcy. Here's howOne of the most frequent questions I’m asked of prospective clients who are considering filing a bankruptcy case is whether they will have to resort to public transit. They have the misperception that their cars will automatically be taken in bankruptcy.

Let’s set the record straight on how to keep your car after bankruptcy. To do so, you must understand the role of “exempt property” in all matters concerning debt collection.



Your car might be “exempt” from creditors’ reach, in our out of bankruptcy

Exempt property for North Carolina residents is set out in North Carolina General Statutes §1C-1601(a).

The most commonly applicable exemptions in North Carolina:

  • $3,500 in an automobile
  • $35,000 homestead exemption (note: debtor’s name must be on the deed and it must be the debtor’s residence)
  • $5,000 for household goods and furnishings (including clothing, computers, art, guns, pets, jewelry, etc.), and an additional $1,000 for each dependent
  • $2,000 for tools of the trade (such as trade tools or a laptop if used for business purposes)
  • A maximum of $5,000 in value of any property that would otherwise be nonexempt: stocks, bonds, equity above the maximum allowed for an automobile, etc. This is known as the “wild card” exemption, is limited to $5,000.00, and is further limited to the amount of any unused homestead exemption. So, if a debtor claims a $35,000.00 North Carolina homestead exemption, she cannot claim any wild card exemption in any amount. However, if she claims only a $30,000.00 North Carolina homestead exemption, she can use a wild card exemption to protect property worth up to $5,000.00.

Here’s how you can keep your car after bankruptcy

You can claim an exemption on a car, provided your name is on the title.

Let’s say you have a vehicle with a fair market value of $5,000 titled in the name of a debtor. The debtor owns the vehicle free and clear of liens. $3,500 of the $5,000 in value is protected under the vehicle exemption, leaving $1,500 of equity exposed to creditors. The debtor can use $1,500 of his or her $5,000 wild card exemption to protect that exposed equity from creditors—creditors can’t touch the car.

If husband and wife both appear on the title, both can claim an exemption.

Changing the facts slightly, the same vehicle was financed with little or no money down, and the debtor is making payments and the lender has a lien on the vehicle. Chances are there is little to no equity in the car; any equity would be covered by the $3,500 automobile exemption, without need to resort to the wild card exemption. However, to keep the car, the payments must be maintained.

Another scenario is that a debtor owns a vehicle with a fair market value of $10,000.00, free and clear of liens. The debtor can protect $8,500 of the car’s value with the automobile and wild card exemptions, but $1500 in equity remains exposed. The creditor can force the sale of the vehicle and keep any proceeds above and beyond $8500.00, remitting the first $8500 to the debtor.

Since you’ve read this far chances are you could benefit from a bankruptcy counseling session. Contact me here to schedule an appointment.

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