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Discussion:Bankruptcy and Newer cars

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Discussion Forum Index --> General Chat --> Bankruptcy and Newer cars


Ztom (talk|edits) said:

29 March 2009
Taxpayer is in BR and owns auto with 30k equity. Will they take the vehicle, make him sell it or will he get to keep it?

Rellis (talk|edits) said:

29 March 2009
The best way to answer the question is for the taxpayer to ask their bankruptcy attorney about it. That being said, I can probably answer your question if you tell me what state the taxpayer filed bankruptcy in, whether they filed under Chapter 7 or 13, whether he owns it outright or still owes anything on it, and if anything is still owed whether it's only owed by him or if there is a cosigner on it.

CrowJD (talk|edits) said:

29 March 2009
Ztom, you need to fill in your profile, please.

Ztom (talk|edits) said:

30 March 2009
I live in Ca and the vehicle is owned outright. Chapter 7

Belle (talk|edits) said:

March 30, 2009
Bet you don't get any answers until you do as Mr. Crow so politely asked........

Kevinh5 (talk|edits) said:

30 March 2009
actually, he's been posting for awhile and we have been dutifully moving his posts to either the Consumer forum or the General Chat because he doesn't get that this forum is for tax professionals only, and without a profile we doubt his professionalism.

Rellis (talk|edits) said:

30 March 2009
Not a simple answer.

The vehicle will be listed on the Chapter 7 bankruptcy petition on Schedule B (Personal Property) line 25. The value should be listed at replacement value, book equity or taxable basis is irrelevant. Values should be obtained from a reputable source like Kelley Blue Book, nada.com, etc, and can reflect the condition of the vehicle.

All the property the debtor owns can have exemptions applied to it on Schedule C (Property Claimed as Exempt). Exemptions are defined by state and federal law, and are categories and values that a debtor is allowed to have in assets that are "off limits" from being seized.

California state law allows the debtor to choose between two sets of exemptions, and does not allow a debtor to use the federal exemptions. The debtor can choose either California set, but must take one as a whole -- the debtor cannot mix and match. A full comparison should be made under both systems to determine which is most advantageous to the debtor.

Under California's first exemption set, a debtor may exempt motor vehicles up to $2,550 under California Code of Civil Procedure sec 704.010. Under the first exemption set, there is no "wildcard" amount that can be applied on property of the debtor's choosing. (I could be a bit off on exact values due to inflation adjustments.)

Under California's second exemption set, a debtor may exempt motor vehicles up to $3,300 under California Code of Civil Procedure sec 703.140(b)(2). Under the second exemption set, there is a wildcard amount of $1,100 plus any unused portion of the homestead exeption under California Code of Civil Procedure sec 703.140(b)(5).

SO...

If the first exemption set is chosen, the fair market value of the vehicle will be only reduced by $2,550. Looks like there will be tens of thousands of dollars in equity un-exempted.

If the second exemption set is chosen... And, if the debtor has a home that they need to use all of the $20,725 homestead exemption on the home's equity (if less used, amount left over can be applied to other assets such as the vehicle), then the fair market value of the vehicle will only be reduced by $3,300 ($4,400 if the $1,100 general wildcard isn't used elsewhere.) Looks like there will be tens of thousands of dollars in equity un-exempted. HOWEVER, if the debtor doesn't have a home, or if there's no equity in it that they need to exempt, or if they own a home and want to let it go in the bankruptcy, then the fair market value of the vehicle will be reduced by $24,025 ($20,725 + $3,300, or $25,025 if the $1,100 general wildcard isn't used elsewhere). Then, there could be some equity un-exempted or not -- depending on what the fair market value of the vehicle is, again book equity or taxable basis is irrelevant.

ALL THAT being said, a bankruptcy trustee is not required to seize all property that isn't exempted. In addition to flat payments, trustees receive a commission of the value of assets they seize, sell, and can pay creditors with. A bankruptcy trustee often will not bother for a small commission to seize property that has little equity exposed, even though they could. Remember, the trustee is looking at what they could really sell the car for, in excess of its exemption, to pay creditors with. They will (should) keep in mind any state taxes/registration the bankruptcy estate would need to pay on the car sale (I don't know what if anything California charges on this.) They (usually) aren't trying to take everything the debtor owns just to be a jerk.

SO, short answer. The only way I can see the debtor keeping the vehicle is if they don't own a home, or don't have equity in it they wish to protect, and that the California second exemption set is still more advantageous as a whole, and the exposed value of the vehicle is zero or small enough for the trustee not to care.

Ztom (talk|edits) said:

30 March 2009
Wow, that was quite an answer and I really appreciated the time you took. I got a little education with your answer. Thanks again. ztom

CrowJD (talk|edits) said:

30 March 2009
There's also a site on the web called BKforum, I think it is. But, this person really needs to see a BK lawyer. I can't imagine someone with 30k equity in a new car... a least on the level I exist on.

Kevinh5 (talk|edits) said:

30 March 2009
these are the same sort of folks who need more than the $2 million exemption for the cancellation of debt income on their personal residence.

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