Will I Lose My Car in Bankruptcy?

Another common question I get asked is: will I lose my car if I file for bankruptcy? The answer — like most answers in bankruptcy — is: it depends. Below I examine what determines whether you get to keep your vehicle in bankruptcy.

Exemptions

Each state has a series of exemptions — laws that provide protection for your property, like vehicles — that you use to protect your belongings in bankruptcy. In Illinois, you have a $3,600 exemption for your vehicle. This means that if the value of your vehicle is less than $3,600, you get to keep it free and clear.

Additionally, each debtor is given a $4,000 "wildcard" exemption in Illinois. You can allocate that $4,000 to protect miscellaneous property — except you cannot use it to protect real estate. If you have wildcard left over after protecting your household goods (furniture, appliances, TVs, etc.), you can apply the remainder as additional protection for your vehicle.

An Example

Say you have a vehicle worth about $5,000 with no loan on it, and household goods worth about $2,000. Here is how the math works:

• Apply $2,000 of the wildcard exemption to protect your household goods — leaving $2,000 of wildcard remaining.
• Apply the $3,600 vehicle exemption to your car — leaving $1,400 of exposed equity (the value above the exemption).
• Apply $1,400 of the remaining wildcard to cover that exposed equity — fully protecting the vehicle.
• You still have $600 of wildcard exemption left for any other property.

And if your car is worth $3,600 or less, the vehicle exemption alone covers it — you keep it free and clear, with your full wildcard exemption still available for other property.

What If I Have a Loan on My Vehicle?

In bankruptcy, having a loan on your vehicle can actually work in your favor. The outstanding loan balance is subtracted when determining how much equity we need to protect.

• If your car is worth $10,000 but you owe $9,000, we only need to protect the $1,000 in equity.
• If your car is worth less than the loan balance, there is no equity to protect at all.

However, having a loan does make your bankruptcy slightly more complex — we will generally need to reaffirm your loan with the lender. We will cover reaffirmation in a separate post. If you have questions about how this applies to your specific situation, feel free to reach out.

The Bottom Line

Most of our clients in the Rockford area are able to keep their vehicles when they file for Chapter 7 bankruptcy. Between the vehicle exemption and the wildcard, there is often enough protection to cover everyday cars — especially when a loan is involved. Every case is different, though, and the only way to know for sure is to review your specific numbers.

If you are wondering whether you qualify for bankruptcy and what you would be able to keep, take a look at our eligibility page or visit our fees page to understand the cost. We serve Rockford, Winnebago County, and all of Northern Illinois — most clients never need to come into the office.

Ready to talk? Call us at (815) 312-4725 for a free consultation — no judgment, just answers.