For many of us, especially if we reside in suburban or rural areas, living without our cars is not an option. The same holds true for my clients, who often worry about what will happen to their vehicles and the like after declaring bankruptcy.
Fortunately, almost all states provide some type of motor vehicle exemption, which allows you to keep a certain amount of these assets safe during bankruptcy. To obtain a motor vehicle exemption, you’ll first need to know how much your vehicle is worth and your state’s exemption amounts.
Determining Replacement Value or Equity
To determine the replacement value of your motor vehicle, check out Kelley Blue Book at https://www.kbb.com/ or National Automobile Dealers Association at https://www.nada.com/ for estimated values. Value your motor vehicle based on private-party value, which is the amount you’d get if you sold the vehicle yourself. This mimics what the trustee, the person assigned to your bankruptcy case, will do.
You’ll also need to subtract any amount you still owe on your vehicle. For example, a car valued at $8,000 with a loan of $6,000 has an equity or replacement value of $2,000.
Once you’ve determined your vehicle’s equity or replacement value, then you’ll need to compare it to your state’s exemption amounts.
Determining Exemption Amount
Each state has exemption laws that detail the type and amount of property a bankruptcy filer can protect. In New Jersey, however, you can choose between using state or federal exemptions. In almost every instance, federal exemptions are more favorable. Under federal bankruptcy laws, motor vehicles are exempted up to $3,675.
New Jersey residents can also use a wildcard exemption (up to $1225, plus an additional $11,500 of any unused portion of the home exemption) and combine it with the federal amount. This means, at the minimum, up to $4,900 ($3675 + $1225) of your vehicle’s value is exempted or protected.
If the exemption amount ($4900) is greater than your vehicle’s equity, then you can keep your vehicle. If not, then what happens next depends on the bankruptcy chapter you filed.
Our clients do not lose their vehicles when filing bankruptcy. An experienced attorney will review exemptions with you before the case is filed.
If you would like to learn more about how to protect your motor vehicles during bankruptcy, please contact me to schedule an appointment.