Will I Lose My Car Or House In Bankruptcy? - Updated
One of the first questions I am asked is, “will I lose my car or house if I file a bankruptcy petition?” It is an important question and it is a question you should ask and have answered by your bankruptcy attorney. The short answer is yes, you could lose your car or house if you do not hire a good attorney. I can tell you that you will not lose your car or house if you hire Bruce W White. The reason is that I will review your situation, and if I believe that there is a chance that the Court will take your car or house, we will not file the bankruptcy petition.
The longer answer is that, in a Chapter 7 case, the Chapter 7 Trustee has a duty to liquidate your property and pay your creditors. The Trustee, however, can only do so if he can sell the car or house and make a “profit.” So, if you car is worth $15,000 and you owe $15,000 to the lender, there is no equity in the car and the Trustee will not take any interest in the car – He will not take it / He will not sell it. You still have to pay the lender on a monthly basis to keep the car (as you were doing when you purchased the car), but that is between you and the lender, not between you and the Chapter 7 Trustee.
The Chapter 7 Trustee uses the same approach with your house as with your car. He values the house, using the assessed value as a starting point, subtracts the loan payoff on the house and looks to see if there is any equity. If none, your house is safe. If there is some equity, then we take a second step. We use “exemptions” provided under the Virginia Code. VA Code Section 34-4 allows us to “exempt” (protect) an additional $25,000 of the equity in the house used as a principle residence and “exempt” $50,000 if owned jointly with your spouse. For example, if your house, owned jointly with your spouse, is worth $350,000 and you owe $300,000 against it, you have $50,000 of equity. We can claim the “homestead exemption” of $50,000 and your house has no equity and you will not lose your home in a Chapter 7 bankruptcy.
In fact, with respect to your car, you and your spouse each have a $6,000 exemption in your vehicles that can be used to wipe out any equity in the car. For example, if your car is assessed (valued) at $10,000 and you owe $4,000 on the car loan, you have $6,000 in equity. The vehicle exemption can be used to wipe out the apparent equity in the car and the Chapter 7 Trustee will not take your car. Call me or make an appointment to discuss this in more detail if you have questions.