If you are drowning in debt, Chapter 7 bankruptcy could give you a lifeline. If your bankruptcy goes well, you can discharge your debt within a few months so that you can begin rebuilding your financial life.
However, there are some important tradeoffs that come with the process. Chapter 7 is a liquidation bankruptcy, meaning it requires you to give up some property in order to help satisfy your creditors. In some circumstances, this may include giving up a vehicle.
Motor vehicle exemption
The good news is that New York law provides some exemptions to the liquidation requirement. One exemption can cover your car. However, the system is somewhat complex.
New York allows you to claim an exemption on the equity you own in your vehicle, up to $4,450. (If your car has been modified for the needs of a disabled person, the exemption is $1,375.) In other words, If your car is worth less than $4,450, the exemption can cover your car in full. You can use a guide such as the Kelley Blue Book to determine your vehicle’s fair market value.
If your car is worth more than $4,450, the motor vehicle exemption alone cannot cover your car, but t’s possible that you could combine it with another exemption. Under New York’s wildcard exemption, you can exempt assets worth up to $1,150. So, for example, if your car is worth $5,000, this would put it over the limit for the motor vehicle exemption, but you could use the wildcard exemption to make up the difference.
Note that you can use the wildcard exemption only if you don’t use the homestead exemption, which you will likely need if you own your own home.