If the thought of losing a vehicle makes you wary of filing bankruptcy, I will tell you this: Don’t worry – you don’t have to lose your car in a bankruptcy! The bankruptcy code and Iowa exemptions are designed to help protect your interest in your vehicle(s).
Of course, it would be nearly impossible to explain all the nuances and variations of filing a bankruptcy and keeping your car in a single article. So, for the sake of brevity, I’m going to focus on keeping your vehicle in Iowa chapter 7 bankruptcy cases, which can be broken down into five key questions. In this post, I’ll cover those five questions. Then in part two of Can I Keep My Car If I File Bankruptcy?, we’ll actually apply those questions to some real life scenarios and show how they impact your ability to keep your car when filing bankruptcy.
Those questions are:
1. How Many Cars Do You Own?
This sounds simple, doesn’t it? But you’d be surprised how easily people can misunderstand the concept of “own.” The basic rule is: If your name is on the title to the vehicle, you have an ownership in the vehicle. I’ve had to clarify that point in all of the following examples:
- “My name is still on the title to my ex-wife’s car.” Don’t tell her I said this, but you own it.
- “My buddy got an OWI and he can’t register a car in his name so we put it in my name.” Questionable judgment on your part, but you still own it.
- “My kid bought a car and we put it in my name for insurance purposes.” Congratulations, you own it!
- “I have an old Camaro but most of the parts I have for it can fit in two medium sized boxes.” Is the title in one of those boxes? Is your name on the title? Yes? Well, handle those boxes with care, ‘cause you own it!
- “I have six cars but none of them run.” Six cars. Six titles. Six of your signatures on the dotted line? Jackpot, you own a fleet (and six lawn ornaments)!
- “I drive a car that my parents gave me after they bought it for me and I make the payments.” They bought it. You’re buying it. So who owns it? Check the name on the title – that’s who.
The point is, it doesn’t matter who drives it, where you park it, who’s making payments, whether or not it runs, or even if it’s all in one piece. What matters is whose name is on the title. If it’s your name, then I am going to list the vehicle as an asset.
2. What is the Year, Make, Model, and Condition of Each of Your Vehicles?
For each car that you have an ownership interest in I am going to need to list the year, make, model, and condition. Again, none of that has any bearing on ownership, but I’ll need information to help answer the next question.
3. How Much Is Each Vehicle Worth?
Based on your answers to the second question, I am going research the value of the vehicle at NADA.com, Ebay, and other resources to determine the value of the vehicle(s). Many times I will initially over value the vehicle.
I know I’ve over estimated the value of the car when I review the numbers with my client and they laugh at the figure I’ve come up with. That’s often when they fill me in on secrets about the car, such as the driver’s-side door that’s held on with a coat hanger and you have to climb through the hatch to get into it. I always enjoy those stories. They remind me of the 1993 Geo Metro I owned while I was in college. Neither door could be opened from the outside. I’d climb through the hatchback to get in the car. From there I would open the passenger door and let my date in. I liked to think of myself as a gentleman for always getting my date’s door. It must have worked, because I ultimately married one of the young ladies that I took out in that car. Yeah, I remember that car fondly – almost wish I still had.
Anyway, the point is, there can be adjustments to the value of the vehicle based on the vehicle’s condition.
4. Are There Any Loans Against The Vehicles?
Car loans include any loan for which a car serves as collateral. In other words, the car is security for the loan. This type of loan is called a secured loan. Car loans can include a loan taken out to purchase a car (purchase money loan) or loans that are taken out where you pledge the title to a car you already own. An example of this would be asking the bank for a $1,000.00 loan and the bank agrees to the make the loan but they want the title to your car as collateral.
5. Is There Equity in The Car?
Equity is the value of the car minus any liens (money owed) against the car. For example, if your car is worth $10,000.00 and you owe $6,000.00 for it, you have $4,000.00 of equity in the car.
Of course, there’s also “negative equity.” For example, if you have a car that’s worth $7,000.00 and you owe $9,000.00 for it, you have $2,000.00 of negative equity, or -$2,000.00. We also call this situation being “upside down.”
Each time I analyze whether or not a client can keep a car while filing bankruptcy, I start with those five questions. Based on the answers they provide, I can pretty quickly tell a client if they will be able to keep their car. Sometimes even when it initially looks like the client can’t keep the car, we can still do some wrangling and make everything work out.
Coming up in part 2 of Can I Keep My Car If I File Bankruptcy, we’ll look at a few different scenarios and whether or not the client can keep the cars after answering the five questions.