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Will I Lose My Car?

Will I Lose My Car?

I wrote an earlier post about the concern clients have that if they file bankruptcy they will put their home ownership at risk. And the answer is that due to the generous ($450,000) exemption for homestead real estate in Minnesota state law, I’ve never had a client who risked losing their home to a bankruptcy trustee. A close second in concern regarding losing assets is auto ownership. And in the case of owning cars and trucks, the answer is a little less clear-cut when the question is, “will filing a bankruptcy case meant that I won’t be able to keep my car?” 

Just as both the bankruptcy code and Minnesota state law provide for an exemption for homestead real estate, both the bankruptcy code and state law provide for an exemption for one motor vehicle. But unlike the homestead exemption, the exemption in both the bankruptcy code and state law is not extremely generous. The bankruptcy code allows an exemption of up to $4000 in equity in one motor vehicle; the state law allows an exemption of up to $5000 in equity in one motor vehicle* (remember that equity is the value of the asset minus the unpaid balance of any loan secured by the asset). 

So if someone thinking about filing a bankruptcy case owns a paid-for relatively new vehicle that person might have some unprotected (non-exempt) equity in the vehicle. And if the person owns more than one car, and there’s equity in both vehicles, then one vehicle would be non-exempt, Does that mean that the bankruptcy trustee is going to take the non-exempt vehicle away from the debtor? The answer is a definite maybe. 

There are several factors that will ultimately determine whether a debtor needs to either turn over possession of a non-exempt vehicle or pay a bankruptcy trustee for the non-exempt equity in the vehicle. I’ll write more about this in another post. You can get answers to this question – and others by visiting with one of the experienced bankruptcy attorneys at Kain + Henehan. Come see us at www.kainhenehan.com to get started! 

*Minnesota law increases the motor vehicle exemption to $50,000 for a vehicle that has been modified to accommodate a driver’s or passenger’s disability; the bankruptcy code does not have a similar provision. 

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