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Can I Keep My Car or Truck If I File a “Straight” Chapter 7 Bankruptcy?

Nov. 25, 2010

So you’ve heard that in a regular Chapter 7 bankruptcy most people can keep their vehicle, but you are worried about whether you’d be able to keep yours. Here’s how this works.

The law protects, or “exempts,” certain things you own so that your creditors can’t take them from you. The idea is that when you file a bankruptcy to get a “fresh financial start,” you ought to be able to keep some basic assets, including a vehicle.

But this protection for your vehicle, the “vehicle exemption,” is capped in Oregon at $3,000 per person. That may not sound like much—try finding a reliable vehicle these days for that price! But it protects more than you might think.

  • If you owe on the vehicle (and the lender is a lien holder on the vehicle’s title, as is usually the case), that $3,000 exemption applies not to the full value of the vehicle, but only to its equity. Equity is the value you have in your vehicle AFTER you subtract the loan balance from the vehicle’s full value. Unless you are close to paying off the vehicle, most likely you don’t have much, if any, equity in the vehicle.

  • If you own two cars, but one has no equity because you owe on it more than it’s worth, you can apply your exemption to the one that has equity, and potentially keep both vehicles.

  • If you are married and together you own only one vehicle, you can combine each of your $3,000 vehicle exemptions, or a total of $6,000, applying that combined exemption to your one vehicle.

  • If you are married and own two vehicles, but one of them has no equity because you owe on it more than it’s worth, you can combine and apply your two exemptions to the other vehicle.

  • If you share ownership of a vehicle with someone else—a spouse, someone you live with but aren’t married to, or anyone else—and you file a bankruptcy by yourself, you can apply your $3,000 exemption to your share of the vehicle.

And maybe most important, the Chapter 7 trustees (whose job is to collect from you and distribute to your creditors any assets that are not protected by exemptions) are generally not super anxious to grab vehicles from you if the value or equity is just a little over the $3,000 mark. That’s not because they are being kind to you. They simply don’t want to go through a bunch of work getting the vehicle, selling it, often paying a sales commission, paying you the $3,000 exempt amount, and then figuring out how to divvy up the sale proceeds among your creditors (after paying themselves the trustee fee), If in the end the amount filtering down to your creditors is so small that it’s not worth all this effort.

This doesn’t mean that, if your vehicle is worth more or has more equity than the exemption, the trustee is not going to take it from you and sell it. But most of the time if the value is truly just a few hundred dollars more than the exemption, the trustee is not going to bother grabbing it.

Portland Bankruptcy Law Group has the experience and knowledge to handle your case. Our bankruptcy attorneys are extremely familiar with and are well versed in all aspects of bankruptcy law. Contact us today!