Rising Vehicle Values Presents New Challenge for Chapter 7 Bankruptcy

Much has been written about the global supply shortages which have made finding an affordable vehicle a very difficult task. In January 2022, Kelley Blue Book reported that the average price of a used car in 2021 was over $28,000, a 28% jump from just a year ago and a 42% increase from December 2019. In recent years past, protecting your vehicle from possible liquidation by the court was not a tremendous challenge. However, with the meteoric rise in the value of all vehicles, the new reality of the vehicle marketplace presents a new challenge that chapter 7 bankruptcy filers should consider before filing.

Renting vs. Owning your Residence

The first big question a potential bankruptcy filer must answer is whether or not they have an interest in any real estate where they reside. Why does this seemingly unrelated distinction matter? The homestead exemption, at the time of this article’s publication, is widely variable and depends on the county in which your home sits. You will need to talk with an attorney to see how much of your home’s equity you can protect in Chapter 7 bankruptcy. However, if you take advantage of this much larger homestead exemption to protect your home, the amount of equity in vehicles which you can protect shrinks considerably. On the flipside, if you rent your residence you can take advantage of the larger vehicle equity exemption on top of the Wildcard exemption which permits a filer to protect over $30,000 in property value (as of March 22, 2022). This means that protecting one or even two vehicles is still within the realm of possibility, depending on the year, make and models in question.

Can the Court Take My Vehicle?

If there is nonexempt equity in any property you own, including your vehicles, a court-appointed Chapter 7 Trustee can request the turnover of these items with the intent to liquidate them in order to pay your creditors. However, typically the first step the Trustee will take in this scenario is to approach you concerning a “buyback agreement” wherein you pay for the nonexempt portion of your property’s value and in exchange the court relinquishes its interest in that property back to you. For example, if your vehicle is worth $10,000 and the amount of equity that is possible to protect via exemption is $3,325. The trustee may (and likely will) approach you after your case has been filed to see if you would like to either: a) Pay the bankruptcy trustee the difference of $6,675 or; b) Surrender the vehicle and receive a check for the exempted portion of the equity ($3,325 in this instance) if the trustee finds a buyer.

If you are struggling with debt and are considering bankruptcy you should speak with an attorney today to ensure you do all you can to protect your vehicle. Please feel free to reach out to your Yuba City bankruptcy attorney at (530) 797-4402 to discuss how we can help you with your debts.