Keeping Your Car In Bankruptcy



One of the most important questions for many people, when they consult with a bankruptcy lawyer is whether they will lose their car, if they file a bankruptcy. This is not surprising, since our country has for the most part failed to maintain public transportation at a level that which can offer reasonable services in most cases, and owning a vehicle has become a necessity of life. Most workers in fact have no choice but to drive to work, and if the bankruptcy court were to take away a person’s car he or she would be unable to earn a living.

In most cases individuals, who file bankruptcy, do keep their cars; however, this is not an absolute rule. In a Chapter 13 bankruptcy the bankruptcy plan will usually provide for the debtor’s payments to satisfy vehicle loans, and the debtors will then keep the cars. In a Chapter 7 bankruptcy, the trustee can sell a debtor’s vehicle and apply the proceeds to pay the creditors, but this will only happen, if the trustee can sell the car for more than the value of the exemption, which the law allows.

Thus it is important for the bankruptcy lawyer to examine what is going to happen under each set of circumstances, and give appropriate advice to the clients.

Under Illinois Bankruptcy Law every individual is entitled to a $2,400.00 exemption on one vehicle. Everyone is also entitled to a $4,000.00 general personal property exemption, which the debtor can apply to her automobile, if she does not need this exemption to protect other property. Thus a person can exempt a car worth up to $6,400.00.

In figuring out how much of an exemption is needed to retain an automobile, you only need to consider the equity in the vehicle. Thus a debtor, who owns a car worth $20,000.00, but who owes $18,000.00 on the car loan used to purchase the vehicle, only has to worry about the $2,000.00 value of his or her interest in the car, and the $2,400.00 vehicle exemption will be sufficient to keep the vehicle.

When a married couple files a joint Chapter 7 Bankruptcy they may be able to use both of their exemptions on a single vehicle and retain an automobile worth $12,800.00. In order to make this election however, they would have to own the car jointly. Unfortunately, even in the enlightened twenty-first century the American tradition of titling the family car in the husband’s name has not totally died out, and following this custom sometimes makes it impossible for a couple to keep the automobile.