There are two things I want you to get from reading this short article: first, the bankruptcy court is probably not going to be interested in your car; second, if the bankruptcy court is interested in your car, it doesn’t matter if it’s your only source of transportation that you have to get to work or take your kids to school. As I’ll show shortly, the bankruptcy court doesn’t even care if you’re using it for your home.
I have filed almost one thousand cases. Ninety five percent of them included at least one car that my client owned. Not once did the bankruptcy trustee take possession of one of my clients’ cars. And the reason why is simple: either my client’s car was worth less than the value that could be protected by the vehicle exemption (rules that protect certain assets) or, relative to how much my client owed for their car loan, the car was not worth enough for the trustee to be interested in.
In the rare occasion when my client had a car that was worth more than the vehicle exemption, my client still kept the car. However, he had to pay some money to the trustee equal to the car’s value that exceeded the vehicle exemption.
The Colorado vehicle exemption doesn’t protect all vehicles. Currently, Colorado Revised Statute 13-54-102(1)(j)(1) protects, “[u]p to two motor vehicles or bicycles kept and used by any debtor in the aggregate value of seven thousand five hundred ($7,500) dollars.” If you are elderly, disabled, or have an elderly or disabled spouse or dependent, that value goes up to $12,500.00. Keep in mind that you only need to protect the equity in the vehicle (value – liens/loans = equity).
But, read on. The exemption specifically excludes snowmobiles, all-terrain vehicles, golf carts, boats or other watercraft, travel trailers, tent trailers, or motor homes. Bottom line: if you own one of these items before you file bankruptcy there is a good chance you won’t own it after bankruptcy. If the loan is for more than the item is worth, the bankruptcy trustee won’t be interested in it. If it has equity, the trustee will be interested in it.
Let’s say, though, that the bankruptcy trustee is interested in your vehicle and you don’t have the ability to “buy back” the equity from the trustee. I have bad news: you’ll lose the vehicle.
In a 2018 case (In re McCain), Judge Rosania of the Colorado bankruptcy court notes how bankruptcy sometimes requires making hard decisions involving people’s welfare. Mr. McCain was an older gentleman, in poor health, with a limited income. He lived in his motor home and used it to commute to his job. He filed a chapter 7 bankruptcy and attempted to protect the motor home by using the vehicle exemption. Although Judge Rosania acknowledges how much it pains him to have to make his decision, he makes short work of his analysis. The statute is explicit in excluding motor homes from its protection. One wonders why the attorney even attempted this argument.
After reading this decision, I decided to dig into the case to see if I could find out what happened to Mr. McCain. Shortly after the court issued its decision, Mr. McCain and the trustee entered into a stipulation for Mr. McCain to pay the value of the motor home. The value of the motor home was amended for much lower than what it was when his case was filed. Given that the motor home was almost 25 years old when he filed, I’m not surprised by the value; I just wonder why it had to be amended instead of using that value of the outset.
I often talk with people who are thinking about bankruptcy that have done online research or talked with friends and relatives about it. This decision highlights one of the more common misconceptions, which is that the bankruptcy court will make an exception in applying the rules for certain people. It won’t. The court will apply the rules no matter the situation. If your car is worth more than what is protected, it doesn’t matter if you “need it to get to work”. You could lose it. The job of a competent bankruptcy attorney is to prepare you for that possibility and talk about your options before you file.
If you’re having difficulty paying your debts and are considering bankruptcy, we hope you’ll schedule an appointment with an experienced Colorado bankruptcy attorney. You can do that by clicking here.