Will I need to sell my car if I file for Chapter 7 bankruptcy?
Chapter 7 bankruptcy can offer a lifeline for individuals struggling with burdensome debt. One of the main concerns of potential bankruptcy filers, however, is that they will lose some or all of their assets. Chapter 7 does have strict requirements for filing and could require the sale of some of your property. Fortunately, exemptions do exist that may allow you to keep some items. Our Beavercreek, Ohio Chapter 7 bankruptcy lawyers discuss the status of your car in a Chapter 7 bankruptcy and your options should you wish to keep it.
Ohio’s Chapter 7 Car Exemption
Each state sets its own exemptions that allow bankruptcy filers to keep certain property up to a set dollar value. Most states provide a motor vehicle exemption, and Ohio is one of them. In the state of Ohio, you can keep a vehicle with equity at or below $3,775 (updated regularly). Some cities allow you to exempt this amount on a second vehicle if you file with your spouse.
If you have more equity in your vehicle, which is defined as its fair market value minus the amount of your loan, then the bankruptcy trustee may force the sale of the vehicle. You will receive the amount of the exemption from the sale, but the remaining portion will go to your creditors. If your equity exceeds the limit, but not by much, you may be able to apply another transferable exemption to preserve the value of the vehicle. For example, Ohio has a wildcard exemption of $1,250, which could save some vehicles.
If you own your vehicle outright, then the vehicle will be exempt if it’s worth less than $3,775. Vehicles worth more could be liquidated should the trustee determine this action will result in worthwhile proceeds for the creditors. Cars that are worth far more than the exempt amount will likely be sold.
Car owners with outstanding sums owed on their vehicle will need to decide whether they wish to keep the car and its loan. You will have the option to reaffirm the loan, so long as the vehicle’s equity is exempt. You will then continue to be responsible for repayment of the loan. Alternatively, you can redeem the car by paying a lump sum for its value.
There are several options for potential bankruptcy filers to keep their vehicles and still find relief through bankruptcy. For some filers, Chapter 13 offers additional alternatives. Contact a bankruptcy attorney to get started evaluating your finances and bankruptcy routes today.