One major consideration for anyone filing for bankruptcy is what will happen to his or her vehicle. This consideration is a big one because vehicles are integral to many people’s daily lives. Vehicles function as modes of transportation to work, a way to access our friends and family, and much more. As a result, many planning on filing for bankruptcy worry about what will happen to their vehicles in the process.
The good news is that not all bankruptcy filings will result in you losing your car. To know exactly which type of bankruptcy is best for you, reach out to an experienced California bankruptcy attorney today.
State-Specific Vehicle Exemptions
Under the Federal Bankruptcy Code debtors are allowed to file exemptions to bankruptcy. These exemptions protect some assets from being liquified and sold off in the course of a bankruptcy. These exemptions can include vehicles, a homestead, and retirement accounts.
As these exemptions are largely regulated by state law, they will vary from state to state; so what qualifies for exemption in California may not qualify in Colorado, or Oregon, and so on.
California’s Bankruptcy Vehicle Exemptions
There are two places in California state law that detail exemptions for vehicles in a bankruptcy. The first, California’s 703 bankruptcy exemption allows a debtor to file the following exemptions for vehicles in a Chapter 7 bankruptcy:
- A $3,525 exemption for the equity held in a personal vehicle.
- A $23,250 exemption for the equity in any asset (but the exemption is cumulative so it diminishes the home exemptions and possibly others).
- A $2,200 exemption for a vehicle used as a tool of a trade or business.
These exemptions can help someone planning a bankruptcy better understand what assets will survive a bankruptcy, and will hep a debtor plan for the future.
Under California law, the 704 bankruptcy exemption differs from 703 in that it helps protect any significant home equity a debtor has. Under 704, the following may be exempted in a bankruptcy petition in California:
- A $2,725 motor vehicle exemption in any equity held in a personal vehicle.
- A $7,175 exemption for any equity in a vehicle that is used in a business, trade, or profession earning a living.
Obviously, these exemptions will only apply when there is equity in a vehicle. If the person filing for bankruptcy is making car payments, for example, and there is no equity in the car, then the bankruptcy will not touch that asset. In addition, the car company or lender on the car may allow the debtor to continue making the payment if an affirmation is signed.
These exemptions are often complex, which is why you need help from a qualified California bankruptcy attorney to make the decisions that are best for you.
Your Southern California Bankruptcy Legal Counsel
(image courtesy of Alvaro Reyes)