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Can I Keep My Car in Chapter 7 Bankruptcy? | Tacoma Bankruptcy Attorney

October 13th, 2017 Bankruptcy Law

If you’re in the process of filing of Chapter 7 bankruptcy or considering filing, you may wonder: can I keep my car? Many people are initially concerned that they will lose everything when they file Chapter 7 in the state of Washington; Fortunately, this is not the case. By law, you can “exempt” a certain dollar amount of real property and assets so that the trustee cannot touch them.

The bankruptcy trustee is the person tasked with making sure the debtors (you) non-exempt property is sold. They will then take a commission for themselves, and then disperse the rest of those funds to the balance that debtor owes their creditors.

The simple answer? Yes. It’s possible to save your car after filing for Chapter 7 Washington bankruptcy under certain conditions.

Man driving car in Tacoma, WA

Bankruptcy Motor Vehicle Exemption in Washington 

There are two sets of exemptions in the state of Washington will allow a debtor to abide by: State and Federal. The debtor can choose which set of exemptions are more advantageous to them.

For example, the Washington State exemption for a motor vehicle is $3,250 for a single person and $6,500 for 2 motor vehicles (as community property of the spouses). Federal is $3,675. So, in this situation, choosing Federal exemptions would be advantageous to keeping more equity in your car if you were a single person with one car.

However, this does not mean that you should automatically choose “Federal” over “State”. You will need to take into consideration your other assets. While you may get a bigger exemption from Federal law for your motor vehicle, what about other property you own? By choosing “Federal” over “State”, you might come out ahead on your car, but lose more money on your house and other assets.

Washington State will not allow you to “mix and match” when it comes to exemptions. You need to choose “State” or “Federal” and stick with it all the way through.

How to Establish Vehicle Value

The first thing you will need to do is establish the value of your car. Kelly Blue Book is a good place to start. The National Auto Dealers Association is another organization that you can use to determine value. The trustee will use one of the two in determining the value of your car.Once value has been established, you can then determine how much equity there is.

If you outright own your car (meaning you aren’t making payments), then the equity in your car is equal to the value of your car. For example: if the value of your car is $7,500 then your equity is $7,500.

If you still owe money on your car (car loan), then equity is determined by looking at how much money you would have left over after selling the car and paying off the loan. For example: if you sold the car for $5,000 and paid off the loan to the tune of $2,500, then your equity in the car would be $2,500.

Will the Trustee Let Me Keep My Car?

After you have determined your equity in the car, now it comes time to figure out the exemption. If you choose Washington State exemption laws, then your total exemption allowance is: $3,250. But what happens if you are still making car payments?

Let’s pretend that the trustee has determined that your car is worth $10,000 according to the Kelly Blue Book.  Let’s also pretend that you still owe $7,500 on a $10,000 car loan and that you have $2,500 of equity in the car. The Washington State exemption is $3,250 and your equity in your car is $2,500. This means the trustee cannot sell your car because the State exemption of $3,250 is more than your equity of $2,500. What happens if you outright own your car?

In this scenario, let’s pretend your car is paid off completely and the trustee has determined your car is worth $10,000 as per Kelly Blue Book. You select “State exemption” and are given a $3,250 exemption on your car. In this situation, the trustee will be forced to sell your car. After the car is sold, the trustee will give you your $3,250 exemption amount, then deduct the statutory trustee percentage (which is the amount the trustee is paid) and then remaining monies go to your creditors.

However, if you select “Federal Exemption and are given $3775.00 exemption on your car you also have the option to use the Wildcard Exemption which is $13,100.00. So if your car is paid off and the trustee has determined its worth is $10,000, you can use the $3,775.00 and wildcard to cover the value of the vehicle.

Special Circumstances in Washington Chapter 7 Bankruptcy

If, after the sale of your car no money will be left to pay your creditors (after your exemption as well as the commission of the trustee), the trustee might abandon your car. This means they won’t take it and sell it. You will be free to keep it.

In other situations, trustees will allow you to continue to pay for nonexempt car equity. For example, going back to the scenario where you outright own your can and it’s worth $10,000, after your exemption, the trustee might allow you to pay the amount your creditors would receive from the sale of your car. This is not a “loan” and you will either need to pay those monies immediately, or you might be given a few months to pay.

Trusted Bankruptcy Attorneys in Tacoma, Washington

As you can see from the above examples, bankruptcy law can be complicated and challenging. This is why you need a trusted attorney to help carry you through these troubled times. Here at Law Offices of David Smith, we’re here to support you throughout the Chapter 7, Chapter 13 or Chapter 11 bankruptcy process in Tacoma.

We will help fight for your rights and give you personalized service which will help alleviate the stress you’re going through. Give us a call at (253) 272-4777 to schedule a consultation to speak with one of our bankruptcy attorneys regarding your unique situation.

Read more articles from Law Offices of David Smith on bankruptcy:

WA Bankruptcy Frequently Asked Questions

Personal or Business Bankruptcy?

Why Do I Need a Bankruptcy Lawyer?