Many consumers may wonder if they can keep their vehicle in a Chapter 7 bankruptcy. There is a motor vehicle exemption that may help protect your vehicle including any equity it may have. In understanding how much protection you qualify for includes reviewing the amount of equity you have in your vehicle. This often depends on whether you own the vehicle free and clear (meaning you have the full title).
If you own the vehicle outright (meaning you don’t have a loan or making payments on it), the equity would be considered the vehicle’s replacement value. Basically, the amount you can get for it if you were to sell it in its current condition. Sources such as the National Auto Dealers Association and Kelly Blue Book can give replacement value information for most vehicles.
If you have a loan attached to the vehicle (making monthly payments), the amount left on the loan is subtracted from the replacement value to learn the equity amount. If the amount is negative or zero, it’s likely you’ll be able to keep your vehicle. If you are trying to avoid repossession there are options you can explore with the trustee.
After learning the equity amount it will be compared to exemption levels set by the state. Each state varies so it is important to review specifics with your bankruptcy attorney or trustee. In many cases, exemption amounts at the state level can provide protection. A wildcard exemption at the federal level can protect excess equity not protected at the state level.