Can I keep my vehicle when I file a Chapter 7 Bankruptcy?

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Can I keep my vehicle when I file a Chapter 7 Bankruptcy?

             Can I keep my vehicle when I file a Chapter 7 Bankruptcy is a very common question asked during an initial consultation for bankruptcy? The answer to that question can be very simply in some instances and very complicated in others. 

             If you plan on keeping the vehicle, it is currently upside down, the interest rate is reasonable and your payment is current most likely you are going to have the vehicle pass through the case and a reaffirmation agreement will be signed and you retain the vehicle and continue to make your payments.  A reaffirmation agreement is a separate agreement signed by the Debtor and the lender that essentially says that even though I filed for bankruptcy relief I will continue to be obligated to pay my debt.  Some reaffirmation agreements have their own challenges and that will be the topic of a future article but for the most part the vast majority are simply approved by the Court when filed. 

             Another scenario that is often encountered is where a vehicle is paid off or has some equity (the value of the vehicle is greater than the amount owed).  In this situation you will have to apply an exemption to the vehicle to retain your interest.  Exemptions are laws that protect your property.  In Florida we apply for the most part Florida exemptions that are found in our state Constitution, state Statues and case law.  Three examples of exemptions that would apply to a vehicle are Florida Statute § 222.25(1) that exempts $1,000.00 in a motor vehicle equity, Fla. Constitution 10-4(a)(2) that exempts $1,000.00 in personal property or F.S. § 222.25(4) that will exempt $4,000.00 in personal property if you do not claim a homestead (primary home). 

             The following examples can show you how the exemption would work. 

 Example 1 assumes that the person does not own his own residence and as such is not claiming a homestead in his bankruptcy petition.

Vehicle value:                         $ 12,000.00

Bank loan on vehicle:             $   9,480.00

Equity in vehicle:                   $   2,520.00

 

Motor Vehicle Exemption:     $   1,000.00

222.25(4) exemption:            $    1,520.00

Non-Exempted Equity:          $           0.00

 

Example 2 assumes that the person does own a homestead and has used $500.00 of his or her personal property exemption to cover such items as furniture and electronics and only has $500.00 left of his or her personal property exemption.

 Vehicle value:                         $ 12,000.00

Bank loan on vehicle:             $   9,480.00

Equity in vehicle:                   $   2,520.00

 

Motor Vehicle Exemption:     $   1,000.00

10-4(a)(2) exemption:            $      500.00

Non-Exempted Equity:          $    1,020.00

            In example 2 the client would need to negotiate this non-exempt amount with the Trustee or if there are other non-exempt assets may need to consider a Chapter 13 filing. 

             Exemption issues can be complicated, and an individual’s overall financial and asset situation needs to be analyzed so that the right decision can be made.

             If you live in Florida and have questions regarding your finances please feel free to contact The Tancredo Law Firm at (813) 659-3612.   Contact us today.

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