Your car is an integral part of your life. You use it to get to work, run errands, and take vacations with your family. You would be devastated if your car was taken away, and you’re wondering if filing for bankruptcy will mean the loss of your car. There’s good news. In many cases you will be able to keep your car even in bankruptcy.
Chapter 7 bankruptcy involves a trustee who will use the assets you have when you file bankruptcy in order to satisfy your outstanding debts. Fortunately, North Carolina provides for exemptions for most of these assets, including automobiles. This exemption is fittingly known as the “motor vehicle exemption.” If you have a car titled in your name, you can use your exemption to protect that car as long as you continue making your car payments. In order to qualify for the motor vehicle exemption you must reaffirm your debt. Reaffirmation is an agreement where you recognize that you are able to make payments on your debt and will continue making those payments until the debt is paid off.
Each debtor can use one motor vehicle exemption total. Unfortunately, you don’t get two exemptions just because you have two cars. If you’re married and file bankruptcy jointly with your spouse, you each get an exemption so you can use them to protect two cars together. If, however, the two cars are both titled to the same person, you would still only be able to use the exception for one of the cars. The motor vehicle exemption protects up to $3,500 of equity value in a car. You may be able to protect more of the equity in your car if you have any wildcard exemption available. That could be an additional $5,000 of equity exemption per spouse in a joint petition.
What is equity? Equity is the difference between the value of your car and the amount you still have left to pay on it. For instance, if your car is worth $5,000, and you still owe $4,000, then you have $1,000 of equity in the car. The motor vehicle exception would protect a brand new 100,000 Porsche on which you’ve made no payments, but it will not protect a fully paid old car worth $4,000.This sounds a bit counterintuitive, but it makes sense for the protection of the creditors. Again, the motor vehicle exemption can be combined with the “wild-card” exemption, which can cover an additional $5,000. Therefore, if you stack the motor vehicle exemption with the wild-card exemption, you can protect up to $8,500 of the equity value of the car.
So, what happens if the equity value of the car exceeds the amount covered by the exemptions? If you have a car with an equity value of $9,000, for example, then the bankruptcy trustee may be able to sell the car in order to pay off your debt. $8,500 would go to you and the rest would go towards your debt. However, you can often negotiate with the trustee and pay the trustee the amount (or a portion thereof) by which the equity in your car exceeds the exemption. In the previous example that would mean paying the trustee $500, and then you would be able to keep your car. Talking with a lawyer at the Alford Law Firm may be the best way to ensure that your car is protected.