If you're considering filing for bankruptcy, you may be worried about losing your car. This is a common concern, but it's important to understand how car equity and bankruptcy work together.
One of the most important things to consider is the value of your vehicle. If your car is worth more than the approved auto exemption, you'll need to get a bankruptcy vehicle appraisal. This will help determine how much equity you have in your car and whether it can be protected in bankruptcy.
While the legal complexities of bankruptcy can be overwhelming, understanding just four things about car equity and bankruptcy can help ease your stress. Don't let fear hold you back from exploring your options and getting the relief you need.
Car Equity and Bankruptcy: What Do You Need to Know?
If you're considering filing for bankruptcy but worried about losing your car, here are four things to keep in mind regarding car equity and bankruptcy:
How Does Your Vehicle’s Appraisal Work in a Chapter 7 Bankruptcy?
When you file for bankruptcy relief, your property becomes part of the “bankruptcy estate.” This means that in a Chapter 7 bankruptcy, the Chapter 7 trustee may use non-exempt assets of the bankruptcy estate to pay unsecured creditors. Unsecured creditors are those who have debts that are not secured by collateral, such as medical bills, credit card debts, personal loans, judgments, student loan debts, tax debts, past due child support and alimony payments, and old rent and lease payments.
The Chapter 7 trustee sells assets and uses the proceeds to pay the unsecured debts. However, before doing so, the trustee must consider how much equity is available in each asset. This is because the trustee only receives the “net equity” after all liens, costs of sale, and bankruptcy exemptions are paid. For example, if you believe your car is worth $20,000, the trustee will only receive the net equity after deducting any liens, costs of sale, and bankruptcy exemptions.
It’s important to note that not all assets are sold in a Chapter 7 bankruptcy. Certain assets may be exempt, meaning they are protected from being sold to pay off debts. Additionally, some debts may not be dischargeable, meaning they cannot be eliminated through bankruptcy.
Understanding the bankruptcy process can be challenging, but it can also provide relief from overwhelming debt. If you are considering bankruptcy, it’s important to speak with a qualified bankruptcy attorney to determine the best course of action for your situation.
How Does a Chapter 7 Trustee Estimate My Vehicle’s Value?
When filing for Chapter 7 bankruptcy, the value of your car is an important factor to consider. However, the value you believe your car has and the value the Chapter 7 trustee determines may differ. The trustee considers several factors when estimating the value of your car, including its make and model, age, condition, mileage, and crash history. To determine the value, the trustee often checks vehicle valuation sites such as Kelly Blue Book, NADA, CarFax, Edmunds, and Auto Trader.
It's essential to note that the trustee may discount the car's value for a "quick sale" or auction. Generally, cars sold at auctions go for a lower price than those sold through private sales. The amount of discount varies depending on the trustee, but it could be up to ten percent in some cases.
Suppose the trustee determines that your car's value is $17,000 at an auction. In that case, they must take several steps to decide whether to sell it. The trustee receives the net equity for your car, so they must subtract the costs of the sale from the value to calculate it. These costs include the payoff of liens against the title, costs of sale (such as towing charges, storage fees, auction fees, title transfer fees), bankruptcy exemptions, and the trustee's commission. The resulting amount is what's available to pay off your unsecured debts.
It's crucial to note that the trustee uses a different process to value antique vehicles, commercial vehicles, and vehicles with other qualities that increase their value substantially. In these cases, the trustee would likely employ an appraiser or auctioneer to determine the vehicle's value.
How Does an Auto Exemption Work in Bankruptcy?
When you file for Chapter 7 bankruptcy, the trustee may want to sell your car to pay off your unsecured debts. However, the bankruptcy automobile exemption can protect a certain amount of equity in your car from being used for this purpose. This means that if the trustee sells your car, they must pay you the amount of your claimed exemption first. But why does the trustee want to sell your car in the first place? Well, their commission is based on what they disburse to your unsecured creditors. If they sell your car and pay off your debts and exemptions, there may not be enough money left to pay your creditors. This is why the trustee wants to ensure they have enough money to disburse to your creditors after paying off your debts and exemptions.It's important to note that bankruptcy exemptions vary by state. Some states allow you to choose between federal and state bankruptcy exemptions, while others require you to use state exemptions. So, before filing for Chapter 7, make sure you know what exemptions are available in your state. You can use a bankruptcy exemption calculator, talk to a bankruptcy lawyer during a free consultation, or research bankruptcy exemptions in your state's laws. Knowing your options can help you make informed decisions about your bankruptcy case.
What Can I Do if My Vehicle’s Equity Is Above the Auto Exemption?
Did you know that most people who file for bankruptcy get to keep their vehicles? That's because the value of their cars is typically too low for the bankruptcy trustee to bother selling. In other words, the amount of money the trustee would get from selling the car wouldn't be worth the time and effort it takes to do so.
But what if your car is worth more than the amount you're allowed to keep? In that case, you might still be able to keep it, depending on the specific circumstances of your case.
So don't worry too much about losing your car if you're filing for bankruptcy. In most cases, you'll be able to keep it without any issues.
Car Equity - Chapter 7 Bankruptcy vs. Chapter 13 Bankruptcy
So, here's the deal: when you file for Chapter 7 bankruptcy, the trustee in charge sells off any non-exempt assets to pay back your creditors. That includes your car, but don't worry, you'll get to keep the portion of the car's value that's exempt. The remaining amount goes to your creditors.
But if you file for Chapter 13, things work a little differently. The trustee won't sell off your assets, so you won't have to say goodbye to your car. However, if your car has unexempt equity, you might have to pay a bit more each month through your Chapter 13 payment plan. The good news is that you'll still get to keep your car, and you'll be on your way to paying off your debts.
If you're not sure which type of bankruptcy is right for you, check out this Chapter 13 calculator to help you make an informed decision.
Final Thoughts About Car Equity and Bankruptcy
Dealing with vehicle equity in a bankruptcy case can be a tough nut to crack. Each state has its own set of bankruptcy exemptions, and the local Chapter 7 trustees have some discretion in administering an estate.
If the equity in your vehicle exceeds the exemption for your state, it's best to seek advice from a seasoned bankruptcy attorney in your area.
We're committed to helping you find the best solution to your debt problems. We can assist you in finding a bankruptcy attorney who provides free bankruptcy consultations. We can also explore non-bankruptcy alternatives for debt relief.
Most of our services come at no cost. Contact us via phone or online to discuss your situation. We help individuals grappling with debt to pave their way to a more financially secure future.