Vehicles and Bankruptcy

Bankruptcy and Vehicles

Dothan Bankruptcy Attorneys helping you keep your car in Houston and surrounding counties, as well as the rest of Alabama

A common question among people considering a bankruptcy filing is whether they will be able to keep their car. After all, without a vehicle, how can the debtor begin to think about his so-called “fresh start,” unable to get to work or take his children to school. The answer to this question requires consideration of three factors: the applicable state personal property exemptions ($7,500.00 in Alabama); the fair market value of the debtor’s car; and the amount of equity the debtor has in his car.

In a Chapter 7 bankruptcy, if the amount of equity the debtor has in his car is less than the applicable state exemption, then he will be able to exempt his car from the bankruptcy estate and keep it through the bankruptcy process. On the other hand, if the debtor has more equity in the car than the applicable dollar amount of the state exemptions, he has a couple options. For one, the debtor can turn the vehicle over to the bankruptcy trustee for inclusion in the estate – the car will be sold off and the proceeds distributed to the creditors, but the dollar amount of the exemption will be returned to the debtor to go toward purchasing another means of transportation. Another option, if the debtor is able to do so, is to simply pay the amount by which his equity in the car exceeds the exemption limit directly into the estate, and keep his car. Of course, a person considering filing for bankruptcy rarely has that type of cash on hand, which may force the debtor to file a Chapter 13 bankruptcy.

In a Chapter 13 bankruptcy, if the vehicle is worth more than the exemptions allow, he or she wouldn’t lose the vehicle, they would simply have to pay to their general unsecured creditors the amount of the value which is not exempt.  For example, if a debtor owns $3,500.00 of general property like household goods and furnishings and has a free and clear $20,000.00 vehicle he knows he’ll lose it in a Chapter 7 and only receive $4,000.00 from the trustee ($7,500.00 of exemption minus his other property valued at $3,500.00 leaves $4,000.00) after it’s sold, so he may elect to enter a Chapter 13 and simply pay to his unsecured creditors the amount of the non-exempt equity, $16,000.00 over a 3 to 5 year period. ($23,500.00 of household goods and vehicle value minus $7,500.00 of his exemption equals $16,000.00).

As the above probably suggest, property exemptions in the bankruptcy code can be tricky, and you need an experienced bankruptcy attorney to help you navigate the process. The Dothan bankruptcy attorneys of Boles Holmes White will help you carry as much of your property as possible into your fresh start, and help guide you through the process in an understanding and professional manner, outlining each of your options throughout the proceedings. Call us today at 334-366-6086, or email us for a consultation, and let u


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