Bay Ridge Bankruptcy Lawyer Discusses Keeping Your Car in a Chapter 7 Bankruptcy

Chapter 7 bankruptcy stops collection actions like foreclosure, repossession, and wage garnishments, but you may be required to surrender nonexempt property in exchange. That’s the part that has people concerned.

When you file for Chapter 7 bankruptcy in New York, one of your biggest worries will be whether you can keep your car. If you have a long morning commute and don’t want to take the train or bus, the car issue may be keeping you awake at night.

I have devoted several blog posts to this topic, but clients from all over Bay Ridge and even Brooklyn and Manhattan keep asking the question: what happens to my car if I file for a Chapter 7 bankruptcy in New York? I understand that you’re worried, so here’s the general information you need- straight from your favorite Bay Ridge bankruptcy lawyer.

Did You Lease the Vehicle?

If you lease your vehicle in New York City and you file for bankruptcy, nothing happens.  You either get to keep the vehicle and re-affirm it (unless it’s a new Mercedes Benz, which can indicate bad faith), or you can give it back so that you’re no longer responsible for it. Your bankruptcy attorney will advise you on which option makes the most sense for your Chapter 7 case.

Do You Own the Vehicle?

If you own the vehicle and file a Chapter 7 in Brooklyn or Manhattan, the outcome depends on how much equity is in it. If its value has depreciated to the point that it’s worth less than what you owe, you can either keep the car or return it. The choice is yours.

On the other hand, if there’s a lot of equity remaining, the outcome is not so certain. If you use the New York State bankruptcy exemptions, you can exempt up to $4,550 in equity in a motor vehicle. If you use federal exemptions, you can protect up to $4,000

This means that if your car in Bay Ridge, Park Slope, or Williamsburg is worth $10,000 and you opt for the federal exemptions, your bankruptcy trustee in Brooklyn can only claim $6,000 of that equity if they sold the vehicle. The remaining $4,000 is yours. But be warned: if you own your car outright OR have significant equity, the trustee will likely sell it, pay off creditors with the proceeds, and give you the exempted $4,000.

You can also negotiate to purchase your car in a Brooklyn bankruptcy. Let’s assume that the car is worth $10,000 and you’re using your $4,000 federal exemption. Your Bay Ride bankruptcy lawyer can make your trustee an offer so that they don’t have to go through the time, hassle, and expense of selling the vehicle. For example:

“Trustee (insert name), my clients are willing to give you $6000 for the vehicle in two payments of $3000 each. Sincerely, Brooklyn bankruptcy lawyer Daniel Gershburg.”

The trustee may accept this offer or say, “I don’t like that offer- make me another one.”  

Either way, if you have some disposable cash, you can and should be able to buy your car back. If not, you may have to consider Chapter 13 bankruptcy if you really want to keep it. 

Do You Have More Questions for a New York Bankruptcy Law Firm?

So now you know (almost) all there is to know about filing for Chapter 7 in NYC when you own a car. If you have additional questions about how cars, real estate, personal injury awards, and other assets will be handled, please talk to a bankruptcy attorney at a law firm in Bay Ridge, Park Slope, Williamsburg, Sheepshead Bay, Flatbush, or anywhere else in Brooklyn. 

At Gershburg Law, we have years of experience with the bankruptcy courts and will give you the legal advice you need to make the right decision. Contact our law office for an initial consultation today by calling 212-390-8866.