The car is 100% paid off. How can I prevent losing it in a bankruptcy? I need it to get the kids to and from school and to get to and from work!
A used vehicle typically will sell at auction for around 40% of its trade-in value in the greater Los Angeles area. Plus, you may have other exemptions that apply, including the wild-card exemption (approx. $23,000) and the commercial vehicle exemption (approx. $4800). Most chapter 7 trustees, which act on behalf of creditors while the bankruptcy is pending, would not concern themselves with selling your car, if only because the trustee would have to establish that the anticipated net proceeds from the sale of the vehicle would be enough to pay you your exempted amount (at least $2775) after the costs of storing, transporting, and selling the vehicles have been paid. And since a trustee expects to get paid from the sale proceeds, the prospect of little or no money being left over after the sale is enough to discourage most trustees from pursuing the vehicle. Should you find yourself toe-to-toe with an aggressive trustee who insists that you turn over the vehicle, you have the option of “buying out” your unexempted interest in the vehicle. So, for example, the trustee might take, say, $2000 in exchange for allowing you to keep the vehicle. In any case, consult a bankruptcy attorney before you file.
Unless you have a lot of possessions, especially a home with more equity than you can exempt under your homestead exemption your car will be safe.
Exemptions issues can be complicated especially knowing that in California you have two different exemption statutes. It is advisable to consult with a bankruptcy attorney before taking actions that can affect your case.
You wrote, "If I file a bankruptcy and have a [car] that is valued at $6,000 and the exemption amount is only $2775. [Will] I lose it in the bankruptcy?"
A: Valuation of a vehicle, for a bankruptcy Trustee, is not retail, but liquidation value, typically at or lower than wholesale value.
First, make sure you are operating on correct assumptions. You say your vehicle is "valued at $6,000." How did you determine that value? In the California Central District, the Judges & Trustees will allow you to value the vehicle based on the wholesale trade-in value as opposed to the "private party" value. The accepted valuation references are Kelley Blue Book (www.kbb.com) and Nada Guides (www.nadaguides.com). So, I would first double-check the value on one or both of those websites.
Second, whether you can exempt the vehicle, or any of your other assets for that matter, depends a lot on which exemption section you are using from the California Code of Civil Procedure (CCP). You can use either the "703" series, which is found starting at CCP 703.140, or the "704" series starting at 704.010. As attorney Whitaker has correctly advised, you would only need to use the 704 series if you have a lot of home equity you need to exempt since the homestead exemption is only available in the 704 series. If you have to use the 704's, then the vehicle exemption is only $2,725.00. The 703 series vehicle exemption is $4,800.00, plus you also have the "wildcard" exemption available to you, which can be used as-needed in combination with any other exemptions and gives you an additional exemption of $25,340.00.
If you are using the 704 series because you feel you have home equity you need to try to protect, then just like the vehicle valuation, make sure you are calculating the equity correctly. How are you determining your home's value? Did you get an appraisal? Use Zillow.com? Do you know what similar comp's in your area have sold for?
The California courts will allow you to take the current fair market value of your home and then subtract 8% of that value, representing the costs of a hypothetical sale, and then subtract the amount owed on your 1st Trust Deed and any other liens against the property. Whatever dollar amount left over is your equity that would need to be exempted. If that figure is low enough, however, you may be able to exempt it using the 703 series wildcard without having to use the homestead exemption of the 704 series.
As you can see, based on the intricacies of valuing your assets and properly applying the applicable exemption sections, it is best to use the services and expertise of a local bankruptcy attorney. If you arrange for a consultation (many will offer a free initial consultation), a good local attorney would be able to help determine the value of your assets, and would also review all of your assets, income, expenses, and all other pertinent facts and be able to more accurately advise you as to the best approach for you under the bankruptcy code, if bankruptcy is even your best option, and if so whether you would be better off with a Chapter 7 or a Chapter 13, and which exemption series would be the best to use.
The car's "excess" value is $3225. It is likely the trustee will either take it, sell it, give you $2775 & distribute the $3225 to your creditors. Or, he MAY let you keep your car, IF you pay him the $3225. The trustees in Oregon usually allow the debtor to make payments over 10 months to "buy back" the car. HOWEVER, I have no knowledge how CA bankruptcy trustees handle this issue. See an attorney BEFORE you do anything!
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