Will I Lose My Car If I File Bankruptcy?

Chapter 7 bankruptcy is often referred to as a “no asset” bankruptcy. However, the bankruptcy laws do allow you to retain certain assets through bankruptcy. Because chapter 7 is a liquidation of assets, the trustee will sell any non-exempt valuable assets to pay creditors. The bankruptcy laws do not allow the sale of assets that are not covered with an available exemption. The basic idea of chapter 7 bankruptcy is that all your dischargeable debts will be forgiven once your non-exempt assets are liquidated. Many times, people think that because they own a car that the trustee will sell it; however, this is not necessarily the case.

What is an exemption?

An exemption is a very valuable tool in bankruptcy. Basically, an exemption is a bankruptcy law that allows you to retain certain assets through the discharge of the bankruptcy. In chapter 7, there are two sets of exemptions to choose from. These sets are the State exemptions and Federal exemptions. You cannot mix and match some state exemptions and some federal exemptions to use.  You have to choose either state or federal for your case. Your assets usually determine which set of exemptions to use. Each set of exemptions are limited to a certain amount.

New York State Vehicle Exemption

The motor vehicle exemption is how you can save your car from its liquidation. For example, using the New York State exemptions, you can exempt up to $4,000.00 worth of equity. According to New York Debtor & Creditor Law § 282(1), if your car is worth more than $4,000.00 and you don’t owe anything on it, then you may be forced to sell it. However, there is also a wildcard exemption that you can use another $1,000.00. A wildcard exemption is an exemption that you can use to apply to any type of property that you have. You may use it to save your car, money in the bank, or any other valuable property you have. You can combine it with any other exemption. If you use it for your car the total equity you can exempt in a car is $5,000.00. There is one limitation with the wildcard exemption, you can only use the wildcard exemption if you haven’t used the Homestead exemption for your home.  If you are disabled and the vehicle is equipped specifically for your disability then you can exempt up to $10,000.00 in equity. If your vehicle is worth significantly more than the available exemption the trustee will likely sell it to pay creditors.

Federal Vehicle Exemption

According to federal bankruptcy law, the motor vehicle exemption amount for a vehicle is $3,675.00. It works the same way that the State exemption, as long as your equity in your car is less than the exemption amount, then you will be able to retain it through the bankruptcy.  There is also a wildcard exemption for the federal exemption $1,225.00.

Changes in Exemptions

State and Federal exemptions change every few years. Usually, the amounts are increased approximately every 3 years. It is best to check with a bankruptcy attorney to see if the amounts have changed. Because everyone’s finances and assets are different, it is best to discuss your case with an experienced bankruptcy attorney.


The above post was written by Joshua C. Sibenik, Esq.