Not surprisingly, keeping a car in a chapter 7 bankruptcy is a priority for many filers who depend on their car to get back and forth to work, take their children to school, or perform errands such as going to the grocery store – the day to day activities where a having a car is essential..
Fortunately, most states have a motor vehicle exemption under bankruptcy allowing filers to hold on to their car. In Illinois, cars and trucks worth up to $2,400 (or with that much equity) are exempt for individual filers, doubling when filing jointly.
For example, when filing individually, a car worth $2,000 is exempt from being sold by the trustee because the bankruptcy exemption for a vehicle is $2,400. If you have a car loan, the exemption applies to the equity so if a filer has a car that is worth $10K but only has equity in the car (payments) of $2,400 or less, it is exempt from the bankruptcy.
Even if a vehicle is worth more than the bankruptcy exemption, filers may be able to combine a bankruptcy wild card exemption of up to $4,000 to nonexempt property such as a vehicle worth more than $2,400 to exempt the vehicle form the trustees reach.
Remember, that even if the car is exempted from the bankruptcy, does not mean that a loan holder is off the hook. A lender can repossess the car if you are behind on payments. If you have a car loan and you wish to keep the car, you may be able to reaffirm the car loan by working out a deal directly with the lender where you agree to make regular payments.
Alternatively, you may want to explore chapter 13 bankruptcy which will allow you to make up missed payments over time so you can keep the vehicle. Discussing the pros and cons of both a chapter 7 and 13 bankruptcy will help you decide on the best strategy for your unique financial situation.
For more than 30 years Charles E Covey has been helping clients who have been struggling with difficult debt challenges. Contact our Peoria law office for your free consultation at 309-674-8125.