Can You Keep Your Car
When Filing Bankruptcy in Florida?
How Florida Bankruptcy Exemptions May Protect Your Vehicle
For many people considering bankruptcy, keeping a reliable vehicle is not optional. You may need your car to get to work, take your children to school, attend appointments and handle everyday responsibilities. Therefore, the thought of losing it can make filing bankruptcy seem like an impossible choice.
However, filing bankruptcy in Florida does not automatically mean your vehicle will be taken. Whether you can keep your car may depend on its value, the amount of equity you have, whether you still owe money on it, the exemptions available to you and whether you file Chapter 7 bankruptcy or Chapter 13 bankruptcy.
Before assuming that bankruptcy will cost you your vehicle, it is important to understand how Florida’s motor vehicle exemption works and how financed and paid-off vehicles may be treated differently.
Can You File Bankruptcy and Keep Your Car in Florida?
In many cases, yes.
People who file bankruptcy in Florida may be able to keep their vehicles. However, simply owning a car does not determine whether it is protected.
One of the most important considerations is the amount of equity you have in the vehicle.
Vehicle equity is generally the difference between the vehicle’s current value and the amount still owed on loans secured by it.
For example, if your car is worth $20,000 and you owe $17,000 on the auto loan, you have approximately $3,000 in equity.
That is very different from owning a $20,000 vehicle outright.
The value of the vehicle, outstanding loan balance and available bankruptcy exemptions should therefore be considered together.
How Does the Florida Motor Vehicle Exemption Work?
Florida bankruptcy law provides an exemption that may protect up to $5,000 of equity in a motor vehicle.
The key word is equity.
The exemption is not necessarily based on the full retail value of the car. If money is still owed to a lender, the outstanding secured debt generally reduces the owner’s equity in the vehicle.
For example:
Vehicle value: $18,000
Auto loan balance: $15,000
Approximate equity: $3,000
In that simplified example, the equity would fall below Florida’s $5,000 motor vehicle exemption.
However, determining the actual protection available can involve other considerations, including vehicle valuation, liens and whether additional exemptions may apply.
What Happens If Your Car Is Financed?
Having a car loan does not automatically mean you lose the vehicle in bankruptcy.
In fact, a financed vehicle may have relatively little equity because much of its value is still secured by the lender’s lien.
However, bankruptcy exemptions and the lender’s rights are two separate issues.
An exemption may protect equity from the bankruptcy estate, but it does not erase the lender’s lien against the vehicle.
If you want to keep a financed car, the loan itself still needs to be addressed.
Depending on the type of bankruptcy and the circumstances, options may include continuing to make payments or using other procedures available under bankruptcy law.
The appropriate approach should be evaluated before filing.
What If You Own Your Car Outright?
A paid-off vehicle requires a somewhat different analysis because there is no auto loan reducing the owner’s equity.
If a car is worth $12,000 and there is no loan against it, the owner may have approximately $12,000 in equity.
Florida’s motor vehicle exemption may protect part of that equity. Depending on the debtor’s circumstances, other available exemptions may potentially provide additional protection.
This is one reason someone with a paid-off vehicle should not assume either that the car is completely protected or that bankruptcy automatically means losing it.
The complete exemption picture needs to be considered.
Visit: Bankruptcy Exemptions Florida Bankruptcy Exemptions Chart
Can You Keep Your Car in Chapter 7 Bankruptcy?
In Chapter 7 bankruptcy, exemptions help determine which property can be protected from potential liquidation.
If the equity in a vehicle is fully covered by applicable exemptions, the bankruptcy trustee generally has no economic reason to liquidate the vehicle for creditors.
However, if substantial non-exempt equity exists, additional analysis may be necessary.
A financed vehicle creates another consideration because the lender maintains a secured interest in the car.
Someone who wants to retain a financed vehicle generally must determine how the loan will be handled during the Chapter 7 case.
Because vehicle values, loan balances and available exemptions differ from person to person, this analysis should occur before the bankruptcy case is filed.
Can You Keep Your Car in Chapter 13 Bankruptcy?
Chapter 13 bankruptcy generally allows debtors to retain their property while completing a court-approved repayment plan.
That can make Chapter 13 particularly relevant when someone needs to keep a vehicle but is dealing with financial problems involving the auto loan.
Depending on the circumstances, Chapter 13 may provide options for addressing past-due vehicle payments through the repayment plan.
Vehicle equity still matters because the value of non-exempt property may affect how much must be paid to unsecured creditors.
Additionally, the treatment of the vehicle loan itself can depend on factors such as when the vehicle was purchased and the specific terms and circumstances of the debt.
Filing a bankruptcy case generally triggers the automatic stay, which can temporarily stop many collection activities, including certain foreclosure actions.
However, the automatic stay should not be confused with permanently eliminating a mortgage or guaranteeing that a homeowner can remain in the property.
A mortgage lender may seek relief from the automatic stay under certain circumstances, and the long-term outcome depends on the type of bankruptcy, payment status and the homeowner’s ability to address the mortgage.
For someone already facing foreclosure, timing can be extremely important.
What If You Are Behind on Your Car Payments?
Being behind on car payments introduces another issue.
Bankruptcy exemptions protect qualifying equity, but they do not eliminate a lender’s valid lien or automatically give someone the right to keep a vehicle without addressing the loan.
Filing bankruptcy generally triggers the automatic stay, which can temporarily stop many collection activities.
However, the long-term treatment of the vehicle depends on the type of bankruptcy, the loan, payment status and the debtor’s financial circumstances.
Chapter 13 may provide qualifying debtors with an opportunity to address certain past-due vehicle payments through a repayment plan.
The earlier the situation is evaluated, the more clearly the available options can be understood.
Having more than $5,000 of vehicle equity does not necessarily mean you will lose the car.
The motor vehicle exemption is only one part of Florida’s exemption system.
Depending on the circumstances, additional personal property protections, including Florida’s wildcard exemption, may potentially be available and could provide additional protection for vehicle equity.
Whether those additional exemptions can be used depends on the debtor’s circumstances, including whether the debtor claims or receives the benefit of Florida’s homestead exemption.
This is why exemptions should be evaluated together rather than looking at the $5,000 motor vehicle exemption in isolation.
Selling a vehicle, transferring the title to a family member or otherwise moving ownership before bankruptcy should be approached carefully.
Bankruptcy requires disclosure of certain financial transactions and property transfers. A transfer made before filing does not necessarily remove the vehicle from consideration and may create additional problems if it was made for less than fair value or in an attempt to place an asset beyond the reach of creditors.
Likewise, paying off a particular debt, transferring a vehicle or making other major financial changes immediately before filing can affect a bankruptcy case.
Before selling, gifting, transferring or refinancing a vehicle, it is wise to understand how the transaction may affect a potential bankruptcy filing.
Protecting Your Vehicle Starts With Understanding Your Options
The question isn’t simply:
“Will I lose my car if I file bankruptcy?”
The better question is:
“How will bankruptcy affect my vehicle based on its value, equity, loan and my overall financial situation?”
Before filing, it is important to understand:
- The current value of your vehicle
- How much is still owed on the auto loan
- How much equity you have
- Whether the Florida motor vehicle exemption protects that equity
- Whether additional exemptions may apply
- How Chapter 7 may affect the vehicle
- How Chapter 13 may affect the vehicle and auto loan
- What happens if payments are already behind
- Whether the vehicle is owned outright or financed
At Carratt Law, Attorney Peter Carratt helps individuals and families throughout Tampa, Daytona Beach and surrounding Florida communities evaluate their property, debts and financial goals before determining the appropriate bankruptcy strategy.
Talk With Carratt Law Before Making a Decision About Your Car
If you’re worried that bankruptcy means surrendering the vehicle you rely on every day, don’t make that assumption before understanding your options.
Contact Carratt Law can review the value of your vehicle, available equity, auto loan, other property and overall financial circumstances to help determine what protections and bankruptcy options may be available.Client Testimonials
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