I don't have a car loan. Can I keep my car in Chapter 7 bankruptcy?

Own your car free and clear? Find out if you can keep it in Chapter 7 bankruptcy.

Example. Daniel’s car is worth $5,000.   His state has a $7,000 motor vehicle exemption.   Since Daniel’s car is worth less than $7,000 he can fully exempt the entire value of the car.   This means that he can keep his car if he files for Chapter 7 bankruptcy and does not have to worry about the trustee taking it.

What If the Motor Vehicle Exemption Is Not Enough to Fully Exempt Your Car?

If your car is worth more than your motor vehicle exemption you may be able to use a wildcard exemption to exempt the rest.   Certain states have a wildcard exemption that can be used to exempt any type of property.   In addition, you can add the wildcard exemption on top of your motor vehicle exemption. (To learn more, see The Wildcard Exemption in Bankruptcy.)

Example. Sally has a $10,000 car but her state only offers a $5,000 motor vehicle exemption. However, her state also has a $5,000 wildcard exemption.   Sally can exempt $5,000 with her motor vehicle exemption and use the wildcard exemption to exempt the remaining $5,000 to keep her car.

What If You Cannot Exempt the Entire Value of Your Car?

You may still be able to keep your car even if you can’t fully exempt it after using all applicable exemptions. This is because there are costs associated with selling a car in bankruptcy. The trustee usually pays a third party to conduct the sale and gets a commission out of the proceeds before creditors are paid. So even if the value of your car is a little more than what you can exempt, the trustee will abandon (won’t take and sell) it if there will be little or nothing left for creditors after costs of sale and commissions. (To learn more, see When Will the Trustee Abandon Property in Chapter 7?)

Example. Let’s say your car is worth $3,000 but your motor vehicle exemption is $2,500. The $500 nonexempt portion will likely all be used to pay sale costs and trustee commissions so it will not be worth it for the trustee to take your car and sell it.

To find out what the exemption amount is in your state, check out The Motor Vehicle Exemption in Bankruptcy.

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