Exemptions are things you get to keep even though you file for bankruptcy. In New York, one of the things you may keep through bankruptcy is a car as long as its value is not above the amount of the exemption.
Federal or New York State Bankruptcy Exemptions?
There are two exemption lists – the federal exemptions and the New York exemptions. When you file Chapter 7 in the state of New York, you can choose one list or the other; you cannot choose some from one and some from the other.
How the Exemption is Calculated
The exemption is calculated on the difference between the value of the car and any outstanding liens. For example, on a car worth $16,000 with a loan balance of $14,000, the value for purposes of the exemption is $2,000. If the car has no loan, then the entire value of the car is considered.
New York Exemption Law Allows You to Protect $5,000 in Value
Under the New York exemption law, you can keep a car with up to $5,000 in value. The exemption for a car in New York is $4,000, and this can be added to what is called the wild card exemption, which can be used for whatever the debtor wishes and is $1,000. (The basic car exemption in New York rises to $10,000 if the car is has been equipped for use by a disabled person.) In the example above, the debtor would be able to keep the car because the value above the lien is less than $4,000.
Federal Law Allows For a Smaller Exemption, But There is a Wild Card…
Under the federal list of exemptions, the car exemption is only $3,450.00. While this is a smaller amount, the the federal wild card exemption has a value at present of $11,975. (The value is due to change this April 1st and may rise or fall by a small amount.) The wild card exemption is usually used for bank accounts and tax refunds. However, if it is not used elsewhere, a car with a value of up to $15,425 can be kept.
If Your Car Was Sold, You Would Get a Check for the Exemption Amount
When the value above the lien is greater than $4,000 (or $5,000 if the wild card is used), the Bankruptcy Trustee can take the car and sell it. He would have to give the amount of the exemption to the debtor, and would use the rest to pay off a portion of the debts.
In cases where the Trustee has the right to take the car, the debtor can, if he can raise the money, pay to the Trustee an amount equal to the unprotected value. Usually the Trustee will give a discount on this amount because dealing with the debtor in this manner saves the Trustee the time, expense and trouble of taking control of the car, storing it, insuring it, posting it for sale, selling it at an auction and doing the other work necessary to complete the sale.
Federal Exemptions May See Like the Way to Go For a Car, But Don’t Forget Your House…
It might seem that everyone would want to use the federal exemptions, and that is the case in 95 percent of filings. However, although the car exemption coupled with the wild card exemption is more generous using federal exemptions than using the state exemptions, the state exemption for a house is much greater than the federal exemption, and someone with equity in a house will often have to use the state exemption to save their house and therefore be required to then use only the state exemption for a car. And if you use the state exemption for a house, you cannot use the state wild card exemption and the value of a car is limited to $4,000.
Of course, when there is a loan on a car, and the debtor keeps the car though the bankruptcy, the loan payments still have to be made. If the loan payments are not made, the finance company can still pick up the car, even though the debtor kept it through the bankruptcy.
Allan Bloomfield practices bankruptcy law in Forest Hills, Queens. Contact Allan today for a free consultation.