Can My Spouse Keep Her Car Through a Bankruptcy?

Certain limitations apply to vehicles during bankruptcy.

Most states allow petitioners who are filing bankruptcy to exempt a certain value or amount or specific items from liquidation. Among these items are automobiles, as long as the value meets the state's guidelines or limitations. These rules vary depending on the state, debt owed, ownership and value of the vehicle itself. To determine your state's laws and limitations specifically, consult your lawyer or county clerk's office concerning the bankruptcy procedure.

Ownership of Vehicle

If the vehicle is in your spouse's name and you are not filing a joint debt in the bankruptcy, your spouse can retain the rights to her vehicle. She will not have any obligations in the bankruptcy and will not have to relinquish her personal property to satisfy the debt. If the vehicle is in your name but your spouse uses it, value limitations will apply.

Joint Debt

The creditor will likely go to your spouse for the owed amount if you attempt to discharge a joint debt without her. Depending on the value of the vehicle, she may have to forfeit it to pay the debt. If you have a joint debt with your spouse, it is best to file bankruptcy together rather than alone. Filing with your spouse will increase your personal exemption amount and may result in retaining the vehicle.

Value of Vehicle

Each state determines the amount of equity your car can hold before you must forfeit it. For example, the state declares the vehicle can have $2,000 worth of equity and you or your spouse has paid $5,000 on the vehicle. The state may require you to sell it for the value to pay off what you owe to pay off some of your debt. Vehicles that are paid for and exceed the given value will likely be included in the bankruptcy. This occurs, of course, if your spouse has any obligation toward the debt in the bankruptcy or the vehicle is in your name.

Exceptions

Cars that still require payment with values less than the exemption are likely exempt from the bankruptcy. You must reaffirm your commitment to continue paying for them, and do so, to keep them. This applies toward the spouse whose name is on the vehicle and whether she is filing bankruptcy alone or jointly.

References

• MSN Money: 12 Myths About Bankruptcy
• New Jersey Law Network: Answers to Frequently Asked Questions About Chapter 7 Bankruptcy
• Law Offices of Cecilia Chen: Bankruptcy: Frequently Asked Questions