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Can I Keep My Car In a Chapter 7 Bankruptcy Case?

Many bankruptcy debtors who wish to keep their motor vehicles often file a Chapter 13. They utilize the concept of the "cram down" which allows the modification of the motor vehicle contract and creates new payment provisions. But individuals who file Chapter 7 cases may also keep their motor vehicles under certain circumstances.

The amount of equity in a motor vehicle is highly determinative of whether or not a bankruptcy trustee may take a motor vehicle to repay general, unsecured creditors. If the equity in a car is less than Florida’s car exemption of $1,000, then a chapter 7 trustee may not sell it. However, if the equity in a motor vehicle is significantly more than the amount of any and all applicable exemptions, the likelihood of a chapter 7 trustee selling the vehicle to repay unsecured creditors increases.

In Florida, the motor vehicle exemption is $1,000 of equity in a car or other vehicle. Thus, if a debtor owns a car worth $8,000 and owes $7,000 on the loan, leaving $1,000 of equity in the car, the debtor may protect all of the equity in his or her car using the Florida motor vehicle exemption of $1,000. Of course, if the motor vehicle is owned free and clear, then any value in the car over $1,000 (the amount of the Florida motor vehicle exemption) becomes the property of the bankruptcy estate.

The primary purpose of the Chapter 7 trustee is to liquidate the debtor's estate and ensure that general, unsecured creditors receive the value of the debtor's non-exempt property. Federal bankruptcy law allows bankruptcy debtors to exempt certain property from the estate, including a certain amount of value in a motor vehicle. If a debtor is able to exempt the entire amount of a motor vehicle, or if the nonexempt portion is minimal, the trustee may abandon the property, thus allowing the debtor to retain the car.

If there is substantial, nonexempt equity in a car, a debtor may turn the car over to the trustee, who will sell it and pay the debtor the value of any exemptions, or the debtor may pay the trustee the amount of any nonexempt equity and keep the vehicle. If current on the car loan, a debtor may simply affirm the debt and continue making monthly payments. Please see future blogs on redeeming and reaffirming a car loan.

If you have purchased an automobile and are experiencing problems repaying the debt and are approaching default, call Loan Lawyers, South Florida consumer rights and debt defense attorneys who help individuals with problems related to the payment of their debts. Contact our office today by calling (888) FIGHT-13 (344-4813) and see how we can help.

Categories: Debt Solution, Bankruptcy
  • ABC News
  • American Civil Liberties Union
  • CBS 4
  • CNN
  • Daily Business Review
  • Florida Trend's - Florida Legal Elite 2014
  • Florida Trend's - Florida Legal Elite 2014
  • National Association of Consumer Advocates
  • National Association of Consumer Bankruptcy Attorneys
  • NBC News
  • National Consumer Law Center
  • The New York Times
  • Avvo
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