Will I Lose My Car in Bankruptcy?

Will you lose your car in bankruptcy?

It is very rare. When you file a bankruptcy case, the Court will create a "bankruptcy estate." This is a fictional entity, like a corporation. The estate is made up of all assets you own, including your car.

In a chapter 7 bankruptcy, the estate is liquidated -- meaning that your assets are sold and the money is used to pay creditors. This is where people are afraid of losing their car. However, usually there is no need to fear.

Ohio law provides "exemptions" that exempt your property from the liquidation. The exemptions are specific amounts that apply to specific types of property. The Ohio exemption for cars is $3,700.00 and it only is needed to apply to equity. Equity is the difference between how much your car is worth and how much you owe on the car. You do not need an exemption to cover secured debt. So here are some examples:

1. You have a car worth $10,000.00. You owe $12,000.00 on it. There is no need for an exemption, because there is no equity. There will be no liquidation in this case.

2. You have a car worth $10,000.00. You owe $8,000.00 on it. Therefore, there is $2,000.00 in equity in the vehicle. The exemption of $3,700.00 covers the entire $2,000.00 in equity. There will be no liquidation in this case.

3. You have a car worth $10,000.00. You owe $5,000.00 on it. Therefore, you have $5,000.00 in equity in the car. The $3,700.00 car exemption does not cover the equity in the car. However, there is another exemption of $1,290.00, called the "wild card" exemption that you can use to cover the gap. There would only be an amount of $10.00 not covered by secured debt or an exemption. This is too little money for the estate to liquidate. There will be no liquidation in this case, as long as the wild card is not being used for something else.

4. You have a car worth $10,000.00. You own it outright. Therefore, you have $10,000.00 in equity in the car. The $3,700.00 exemption does not cover that much equity, even when the wildcard is added in. It is likely the car would be liquidated. However, I would not recommend giving up here. There are some options, but you will need a seasoned bankruptcy attorney to deal with this kind of issue.

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