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Can I keep my car if I file for bankruptcy?

“I need to keep my car.  Bankruptcy seems like it could make me lose it.  What are my options in New York?”

This is a common concern among people considering filing bankruptcy in New York.  Fortunately, the bankruptcy code recognizes that people often need their cars so they can go to work and continue to earn income necessary for survival.  As a result, the bankruptcy process provides a certain amount of protection.

Here are some of the options, depending on your circumstances:

1.  If you own your car outright (i.e.., no more payments) and your car’s present market value is $4,550 or less, then you can keep your car.  No further steps necessary.  That’s because the exemption for cars under New York bankruptcy law is $4,550.  It’s also worth noting that if you opt to use the federal bankruptcy exemptions rather than New York state bankruptcy exemptions, the federal car exemption is $4,000.  However, federal exemptions also allow for a “wild card” exemption of $12,575.  The wild card exemption can of course be used towards the value of your car to the extent you haven’t used it for other things.  The wild card exemption, however, is only worth $1,150 to those who claim a homestead exemption. Notably, it is also the only federal exemption that covers cash and tax refunds,  (These are the kinds of strategic questions that experienced Brooklyn, NY bankruptcy attorneys will help you figure out.)

2.  If your car is worth a little more than $4,550, it’s possible that you may still keep your car with no further steps necessary.  This is because some trustees won’t bother pursuing low value assets.  So if your car is worth $5,450, a trustee knows that $4,550 would be given back to you if it takes the car, and the trustee would only keep $900 for the estate.  The trustee in that case may decide that it’s not worth it to pursue such a small asset.

3.  If your car is worth more than $4,550, you also have the option of buying back the non-exempt equity.  That is, if your car is worth $7,550, you have the option of paying $3,000 to the trustee to be able to keep your car.  Otherwise, the trustee will take your car, sell it, and give you $4,550 back (i.e., the exempt portion).

4.  If you lease the car, you have the option of “assuming” the lease and continuing with payments on the car.  Of course, you have to have enough income or money to be able to continue to make payments or you’ll lose the car.

5.  An additional thought, if you can wait a bit:  You can give up the car and then purchase a new car after your bankruptcy case is completed.  How?  After you get your discharge, you’re actually a more attractive customer to many lenders, since your slate has been cleared of other debts.  At that point, you could take the money you received from relinquishing your car and put it towards an appropriately priced car.  This also potentially helps you with repairing credit after bankruptcy, as taking out small loans and repaying them is one of the positive approaches for how to build credit after bankruptcy.

Granted, incurring new debt after finishing your bankruptcy case should be undertaken wisely as well perhaps with appropriate post bankruptcy counseling.

Up to now we’ve been talking about Chapter 7 bankruptcy.  Contact an experienced bankruptcy lawyer to help determine if Chapter 13 makes more sense for you.

If you’re wondering “Can I keep my car?” bankruptcy lawyer Bruce Weiner can help. Contact the experienced bankruptcy lawyer at Rosenberg, Musso & Weiner for a free initial consultation.

Rosenberg, Musso & Weiner, L.L.P
26 Court St # 2211
Brooklyn, NY 11242, USA

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