If you file a Chapter 7 bankruptcy, you’ve probably read about how the Bankruptcy Trustee “liquidates your property”. Well, let’s go through a couple of examples to show how this doesn’t usually happen in Pennsylvania Chapter 7 cases. (If you live in States other than Pennsylvania, don’t rely upon these descriptions, because the exemptions in other States are different. Bankruptcy “exemptions” are the monetary amounts you are permitted under the law to use to protect your property.)
So, how do you protect your car? First, if your car is still financed, then the Bankruptcy Court cannot take away your car because you don’t have the title anyway. Will your car lender object? No, not if you continue to make your regular monthly payments.
Second, if your car is paid off and it’s an older model car, then you can protect it from the Bankruptcy Court by using the “motor vehicle exemption”. This is the dollar amount that you can allocate toward the value of your vehicle. Right now, that amount is $3,225 per title owner.
So, let’s say that your car has a fair market value of $6,000, how do you save your car? You use your $3,225 motor vehicle exemption, and then you protect the remaining $2,775 by applying the “wild-card exemption”, which can be used to protect any property whatsoever.
Motor vehicle exemption planning requires some planning and thoroughness, but in over 17 years of practicing bankruptcy law, I’ve never had the Bankruptcy Court Trustee liquidate one of my clients’ vehicles.
What happens if you already made the transfer? Two years ago, I transferred my property in South Carolina due to mental breakdown–my family thought it would be better to not have it in my name. That was two years ago. The equity is less than 20,000. Will I be able to use wild card to protect property? When I tranferred it, it was not to defraud creditors-I had perfect credit back then. Will they understand this?