Too much equity in your vehicle can still result in a creditor (other than your vehicle lender) seizing it.
Our last few blog posts were about an important new Oregon law which went into effect this last July 1, 2013. This law can be very beneficial to Oregon residents filing bankruptcy. Please see the first blog post of this series, “New Oregon Law Makes Filing Bankruptcy Even Simpler and Safer” by clicking on that title, and the rest of the series in the column to the left or by clicking here.
The primary beneficial effect of the law is that it allows Oregon residents to protect more of their possessions when filing bankruptcy. The law accomplished this by allowing people in Oregon for the first time to use a set of property exemptions contained in the federal Bankruptcy Code. Up until then, they were restricted to using the usually less generous Oregon set of exemptions.
The Problem Is . . .
The easily confusing part of this is that OUTSIDE of bankruptcy, Oregon residents are still stuck with the Oregon exemptions. They can’t use the federal exemptions except when filing bankruptcy. What this means is that this recent change in the law does not help you in regular collection procedures against you. We’ll show what that means in practical terms in a moment.
This situation IS quite confusing because this was a change in Oregon law by the Oregon legislature that opened the door to using the federal exemptions in bankruptcies by Oregon residents. That’s because—as a result of a political compromise with roots going back into the 1800s—federal bankruptcy law gives each state the option of either allowing its residents to use the federal exemptions in bankruptcy or instead to “opt out” of allowing that. Oregon has now opted in, but again this only applies to bankruptcies.
The new Oregon law specifically states that it “does not apply to executions.” (See Section 4.) We’re not talking death penalty here, but rather a legal procedure for the collection of debts. Execution in this meaning is “the act of getting an officer of the court to take possession of the property of a losing party in a lawsuit (judgment debtor) on behalf of the winner (judgment creditor), sell it and use the proceeds to pay the judgment.” (From www.dictionary.law.com.)
This means that the federal exemptions are not available to you if a creditor sues and gets a judgment against you. Your protection there is limited to the Oregon exemptions.
Applied to Your Vehicle
The importance of this distinction is made clearer by illustration. Assume that you own a 2007 Ford Escape, very clean, low mileage, with a blue book retail value of $10,000. It’s your prize possession, partly because you absolutely need it to get to work, and because, frankly, you don’t own much else of value. Even though you have not been able to pay some of your other creditors, because your Escape been such a priority you’ve managed to pay off its 6-year vehicle loan recently.
You were sued a while ago by a couple of old creditors and didn’t respond to the papers you received, so they got judgments against you. You haven’t heard from them in many months. But you’re concerned about your Ford Escape and what these creditors can do to it and to you. You got really concerned once you heard that Oregon law provides only a $3,000 exemption for a vehicle, meaning that most of the value of your vehicle is not protected from creditors.
But then you heard about the change in Oregon law this last summer allowing the use of the federal exemptions and you figured your Escape was safe. You heard that under the federal exemptions if you did not own a home with any equity—which you do not—you could add $11,500 in unused homestead exemption to the $3,675 federal vehicle exemption, protecting your Escape up to $15,175 in value, more than enough to cover its value. You figured you could sit back and relax.
You would be wrong.
As explained above, the change in Oregon law only made the federal exemptions available to people filing bankruptcy. It specifically did not make them available to you for protection from creditors executing on judgments. That means that those creditors with the judgments have the right to have your vehicle seized, sold, and the proceeds used to pay the judgment. As soon as they have a judgment they can get a writ of execution issued by the court instructing county sheriff deputies to execute upon your vehicle. You would receive $3,000 of the proceeds—the Oregon exemption amount—but would have lost your car.
The way to avoid this, and to take advantage of the federal exemption, is to file bankruptcy. That would permanently get rid of the debts and judgments, and fully protect your vehicle in the process.