Bankruptcy Blog

Keeping Your Car in a Chapter 7 Bankruptcy

As I have mentioned in many of my blog posts: There are endless misconceptions about Bankruptcy (click to find out the TRUE benefits of filing a chapter 7 and chapter 13).

The misconception:

You will lose your car.

The Truth:

You can keep your car in both chapter 7 and chapter 13 bankruptcies.

               Cars in chapter 7 bankruptcy in Ohio is all about EQUITY. Equity is the value of the vehicle ABOVE however much money you still owe on the vehicle.

A Few examples of EQUITY: 1) Value: $10,000. Owe: $0 = $10,000 EQUITY. 2) Value: $10,000. Owe: $7,000 = $3,000 EQUITY. 3) Value: $10,000. Owe: $14,000 = $4,000 NEGATIVE EQUITY.

               Individuals in Ohio in 2018 are allowed to Exempt (i.e. protect, shield, retain, etc.) up to $3,775 of Equity in a single vehicle + Ohio offers individuals an additional “wildcard” exemption of $1,250 to protect their assets, including adding on to the $3,775 vehicle exemption. This allows for a $5,025 exemption of equity in a vehicle.

               Scenario 1: Your vehicle has $4,500 of equity. The bankruptcy cannot take it because it can be fully exempted (“protected”).

               Scenario 2: Now imagine a situation in which your car has $7,500 of equity. I can exempt (“protect”) the first $5,025 of the equity, but the remaining $2,475 is unexempt. The bankruptcy trustee is permitted to demand the unexempt $2,475. The trustee will either allow the debtor to keep the car and ask the debtor to pay the unexempt $2,475 into the bankruptcy, called a “buyback” (oftentimes the trustee will allow 6-12 months for this “buyback” option). Or, if the debtor cannot or refuses to “buyback,” the trustee can take the car and sell it at auction. In this situation YOU will receive the first $5,025 of the auction proceeds(!!!!), and the bankruptcy creditors will receive the leftover $2,475 auction proceeds.

               Scenario 3: The situation in which you OWE money on the vehicle is SIMPLE, but a little different because it involves a third player – the car financing company. In addition to the equity consideration, you, as the individual filing bankruptcy, must (1) be current on the vehicle payments on the day you file your bankruptcy case, and (2) remain current on your future payments. These 2 requirements are to appease your car financing company, thus ensuring it does not have a reason to want the car back. The financing company almost always sends out a “reaffirmation agreement” for the debtors and their attorney to consider signing.

Call or text for a free consultation, or with any questions!

-Lucas M. Ruffing, Bankruptcy Attorney

Lucas Ruffing