Can You Keep Your Car in Bankruptcy? Tips for North Carolina Bankruptcy Clients

Can you keep your car in bankruptcy?
Image Source: Sandro Ferrarese (CC 2.0)

One of the most pervasive myths about filing for bankruptcy is that you’ll lose everything you own. This isn't true. The two biggest concerns for most people considering bankruptcy are the fates of their cars and their homes. Here’s what North Carolina consumers need to know about their car and bankruptcy.

Exemptions Protect You

Bankruptcy comes with “exemptions” which protect certain assets. If something is exempted, it is excluded from your bankruptcy proceedings. Under a personal bankruptcy that you file as an individual (either because you're single or because your spouse is not filing with you), you can exempt $3,500 in vehicle equity. If you file as a married couple, the limit is a bit higher – you can exempt a total of $7,000 in equity.

Equity Is the Deciding Factor

So what is equity? Equity represents the stake you own in something. If you own your vehicle free and clear, your equity in it is 100% because there is no debt attached to the asset. You can have equity in a vehicle if it's financed, too, although how much depends on how far you are into your loan, your interest rate, and other factors.

How to Calculate the Equity in Your Vehicle

If you own your vehicle free and clear with no liens or debt attached, then your equity equals the fair market value of your car. So if you own a Nissan worth $3k, with no loan, you can protect that vehicle in bankruptcy. If your car is worth $10k and your car loan is $7k, you have $3k of equity that can be protected. However, if your car is worth $10k and your loan balance is $2k, that’s a problem – you may not be able to keep the vehicle.

What if You Own More Than One Vehicle?

If you own more than one vehicle, that doesn’t change the dollar amount of equity you can protect. You may be asked to sell the second vehicle if it’s an asset worth selling. If you and your spouse are filing together and have two vehicles, you may be able to shield them both using your North Carolina exemptions so long as they aren’t excessively valuable.

Do You Own Your Car Outright or Have a Loan?

Another important factor is whether you have a loan on your car and are current on your payments. If you’re behind and are facing repossession, filing bankruptcy can stop that threat for a time. With Chapter 13 bankruptcy, you can get time to catch up on the past-due payments. With Chapter 7 bankruptcy, you may be able to pay off the loan for less than you owe.

What if Your Car Is Leased?

If your car is leased, your Trustee may decide that you have to surrender the leased vehicle. You may, if the Trustee does not object, opt to continue on with the lease. If you want to be rid of the lease, North Carolina bankruptcy can help you surrender the vehicle and get out from under any debt associated with it.

The bottom line is that North Carolina bankruptcy exemptions allow you to protect a reasonable amount of assets while getting out from under debt you can’t afford to pay. To find out more, contact the Law Offices of John T Orcutt.

Call +1-833-627-0115 now for a free North Carolina bankruptcy consultation at one of our locations in Raleigh, Durham, Fayetteville, Wilson, Greensboro or Wilmington. Get the financial peace of mind you deserve and get out of debt now.