Arkansas residents have a choice of using state or federal bankruptcy exemptions to protect one motor vehicle during Chapter 7 bankruptcy. There is a big difference between these two laws. The federal motor vehicle exemption allows a debtor to exempt up to $3,450 in car equity. The Arkansas state exemption protects only $1,200 in motor vehicle equity.
Read on to learn more about using exemptions to protect car equity, including increased exemption amounts for married couples, covering additional equity with the wildcard exemption, and more.
(For more information about exemptions, including how they work and which ones you can use, see our Bankruptcy Exemptions area. For information specific to the motor vehicle exemption, see our Motor Vehicle Exemption in Bankruptcy area.)
The Amount of Arkansas’s Motor Vehicle Exemption
The federal bankruptcy code allows you to apply legal exemptions to protect your motor vehicle equity. Arkansas residents who file bankruptcy can select from either the federal bankruptcy exemptions or the Arkansas state exemptions (not both). The federal motor vehicle exemption is $3,450, while the Arkansas state vehicle exemption is only $1,200.
(To learn more about the federal exemptions, see The Federal Bankruptcy Exemptions.)
How to Use the Arkansas Motor Vehicle Exemption
Arkansas residents can apply the Arkansas state or federal motor vehicle exemption to protect equity in one vehicle. If the equity in your car is less than the motor vehicle exemption, then the trustee cannot sell it. If the equity in your car is significantly more than the applicable exemption amount, the trustee is likely to sell your car to repay your unsecured creditors. For details, see The Motor Vehicle Exemption: Can You Keep Your Car in Chapter 7 Bankruptcy?
Keep in mind that even if your car is safe from the bankruptcy trustee, the lender may be able to repossess your car during or after bankruptcy. To learn more, see Your Car in Chapter 7 Bankruptcy and If You Are Behind on Your Car Payments, Can Chapter 7 Help?
How Much Equity Do I Have in My Vehicle?
Vehicle equity is the fair market value minus the amount of money owed on the vehicle. For instance, if your car is worth $5,000 and your loan on that vehicle is $4,000, your equity is $1,000.
Your equity may be reduced by judgment liens or by co-owners. For example, if you and your mother own a vehicle jointly that has $2,000 in total equity, your share of the vehicle’s equity is only $1,000.
Can Married Couples Each Apply One Exemption to the Same Vehicle?
If you and your spouse both own the motor vehicle, you can apply your individual Arkansas state or federal motor vehicle exemption to protect the vehicle’s equity. That is a maximum of $6,900 under the federal exemptions, or $2,400 if you elect to use Arkansas' state exemptions.
(To learn about the advantages and disadvantages of joint bankruptcy filings, see Nolo's section on Bankruptcy Options for Married Couples).
Using the Wildcard Exemption to Cover Additional Vehicle Equity
If your equity exceeds your motor vehicle exemption, you can apply special exemptions to the excess equity. Arkansas statutes allow up to $200 for single filers, and up to $500 for head of family filers or joint husband and wife filers.
Selecting the federal exemption laws can work to your advantage here. The federal law permits an individual to exempt up to $21,625 in home equity. You are allowed to apply the unused portion of this homestead exemption to exempt personal property, up to $10,812.
How Many Vehicles Can I Keep?
The federal exemptions allow you to use one motor vehicle exemption for one vehicle per person. The unused portion of your homestead equity can be applied to a different vehicle. If you and your spouse file a joint bankruptcy, each of you can apply your individual motor vehicle exemption and homestead exemption to protect up to four vehicles.
Similarly, Arkansas law only allows you to apply the motor vehicle exemption to one vehicle. Like the federal law, you and your spouse can apply motor vehicle exemptions and wildcard exemptions to up to four vehicles.
Checking Exemption Laws
You can find Arkansas’s motor vehicle exemption at A.C.A. § 16-66-218. You can find the Arkansas statutes on the website of the Arkansas State Legislature at http://www.lexisnexis.com/hottopics/arcode/Default.asp.
Federal bankruptcy exemptions are included in Chapter 11 of the United States Code. For federal exemption amounts, see The Federal Bankruptcy Exemptions.
To learn how to find state statutes, see Nolo’s Laws and Legal Research area.