How To Obtain Motor Vehicle Exemption in Bankruptcy
The property is taken and sold in a Chapter 7.The Trustee pays off your debts.The debts that remain are forgiven.Although the Trustee can take and sell your car, each state allows you to claim an exemption up to a certain amount.It is possible for a state to exempt $6,000 of a car's value for people in bankruptcy.You can keep the car if it's worth less than $6,000.If your car is worth $10,000, the trustees can sell it and give you $6,000, which is the amount of your exemption.To get a motor vehicle exemption, you need to find out how much your car is worth in your state.
Step 1: Get the new value.
You can find the replacement value of your car by visiting either the Kelley Blue Book website or the National Auto Dealers Association website.The make, model, year, mileage, and general overall condition of your car need to be entered at each website.You can find the car's value on the website.
Step 2: The value is calculated if you have a loan.
You still have $7,000 left on your car loan.The loan will be subtracted from the replacement value to calculate the car's value.The replacement value can be found by visiting Kelley Blue Book.If your car has a replacement value of $12,000 and you have a loan of $7,000, the car's value is $5,000.That is the amount of equity in the car.The equity can be used to pay off other debts.
Step 3: Understand negative equity.
The loan might be more than the replacement value.This is not new.Your car might have a replacement value of $6,500.If you have negative equity, the bankruptcy Trustee can't sell the car because there is no equity in it.The bank would use your car as a security and the money would have to be handed over by the Trustee.The Trustee would not be able to use other money to pay your other debts.
Step 4: You can search for your state's exemption.
Some states allow people in bankruptcy to protect certain property so that the bankrupt cannot sell it.There is an exemption for your car in most states.Only a small amount of value will be protected.You should use the Internet to find your state's exemption.You can type in your state and motor vehicle exemption into your browser.States have different amounts of exempt states.You can keep up to $2,400 in Illinois.You can exempt up to $6,000 if you are disabled in Arizona.
Step 5: There is a federal exemption.
You can use the federal exemption if your state doesn't have an exemption.Federal law allows you to protect the value of the car.
Step 6: If you can protect the entire vehicle, that's a good sign.
If you know your exemption amount, you can compare it to the value of your car.If the exemption is greater than the value, you can keep the car.The Trustee won't be able to sell it.Your car could be worth $5,000.You can keep the vehicle if your state exempts $6,000.If your car is worth more than $10,000, it will not be protected by the motor vehicle exemption.This means that the car can be sold at an auction.After selling the vehicle, the Trustee would give you $6,000.
Step 7: There are "wildcard" exemptions.
Some states have exemptions.It is possible to apply these to any piece of property.You can add this amount on top of the motor vehicle exemption in your state.Your car may have a resale value of $5,000.It is possible that your state will only allow $2,500 to be exempt.You can protect the entire vehicle if your state also allows an additional $2,500 in wildcard exemptions.You should search the internet for any exemptions.You can type "your state" and "bankruptcy exemption" into your web browser.A $1,225 exemption is provided by the federal government.If you are married, the amount is doubled.
Step 8: Take a look at unused homestead exemptions.
An exemption for your homestead is provided by some states and the federal government.The purpose of the exemption is the same as for the motor vehicle exemption: if your house has value in it, the trustees can technically seize it and sell it.The value is used to pay off your debts.Both states and the federal government want you to be able to protect your home.You can exempt some value in the house.Some states will allow you to use an unused portion of a homestead exemption for other purposes.Your state could allow a $20,000 homestead exemption.It is possible that you only need to protect $10,000 in home value.You have $10,000 left over from the homestead exemption.You can apply the unused portion of the homestead exemption to other property.Do you know your state law?If you stop into your nearest law library, you can tell the librarian that you're researching bankruptcy exemptions.The law should be found by the librarian.
Step 9: Your state has a motor vehicle exemption.
The equity in your car should be calculated.You should apply your state's motor vehicle exemption first.If your state does not have an exemption, apply the federal exemption.You might be able to exempt $2,500 in your state.You can keep the car if it's worth $2,500 or less.If your car is worth $7,000, then you have $4,500 in equity that is not exempt.The Trustee can use the money from the sale of your car to pay off other debts.
Step 10: Apply any exemption.
A $1,000 exemption might be allowed by your state.You can keep the car if the equity is less than $1,000.After applying the exemption, you might still have equity left over.Your car may be worth more than $7,000.You have $4,500 of equity remaining after applying your state's motor vehicle exemption.You still have $3,500 of equity after applying your state's wildcard.The car could be seized and used to pay off other debts.
Step 11: Apply for a homestead exemption.
You should apply any homestead exemption that you didn't use.If you have a homestead exemption, you might be able to cover the remaining equity in your car.You can keep the car if that's true.Your car might be worth $7,000.You still have $1,000 left in equity after applying your exemption.You can keep the car if you apply the unused homestead exemption to it.The remaining equity can be used to pay off your debts if you can't afford it with a homestead exemption.
Step 12: The car may not be sold by the Trustee.
The Trustee might realize that it is too much work to auction the car for so little value if the equity remains.Abandoning the vehicle is called this.The Trustee has to deduct the costs of the sale and take a commission after selling a vehicle.The equity in the vehicle might be eaten up by these.$500 in equity may be available after you apply your exemptions.This $500 could be eaten up by the costs of selling the vehicle at auction.The vehicle will probably not be sold by the Trustee.