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Protecting Your Car from Creditors in Kansas
In a recent study it was found that a person suffering overwhelming financial distress is more likely to stop paying his mortgage before he stops paying his car payment. In other words, protecting your car from creditors is often the number one financial priority during financial difficulties. There are many assumptions we can make about why this is, but the most likely reason is because in our economy and our suburban society we live too far away from our jobs to be able to work without our vehicle. In essence, our vehicle in many ways is our lifeline to our income while our home is not.
As such, the vehicles we own have become an integral part of our financial stability and the bankruptcy code is designed to allow you to keep those items that are critical for a person filing bankruptcy to be able to continue surviving. Consistent with this purpose, the Kansas bankruptcy exemptions include a vehicle exemption for each debtor up to $20,000 of interest in that vehicle. It is important to note that different rules apply to the interest you can exempt in a vehicle that has been modified for the transportation of handicapped bankruptcy debtors.
So how does this play out in a practical sense? That depends on your specific circumstances. If you are married and filing jointly with your spouse then each one of you can exempt a vehicle separate from the other. That is potentially a total of $40,000 of exemptions.
Perhaps a more precise way of looking at this exemption is by stating that you are exempting your interest in the vehicle, not the vehicle itself. Generally speaking, this means that you are exempting the equity you have in your vehicle. So if you have a $50,000 vehicle and owe $31,000 to the bank for that vehicle, then you have $19,000 of equity. Thus, you will be able to exempt the $19,000 equity/interest which you own in the vehicle.
While the vehicle exemption is an extremely valuable tool, it does have its limits. As noted above, you can only exempt one vehicle per debtor. So if you file by yourself (rather than jointly with a spouse) and you have your name on two vehicle titles, then your interest in one of those vehicles will not be exempt. If you do file bankruptcy jointly with your spouse and you have three vehicles, than two may be exempted, but one may be subject to administration by the bankruptcy trustee. Although there is an important nuance when a bankruptcy debtor's name is on a child's car but the car was paid for and maintained by the debtor's child and not the debtor, but that is the subject for another blog at another time.
Furthermore, under the Kansas exemption laws, the vehicle(s) you exempt must be used regularly for your transportation. So, on one hand, if you own a motorcycle in Kansas and try to claim it is your regular form of transportation, it may be difficult to convince the trustee because of the impracticality of driving a motorcycle during the winter. On the other hand, if you have a vehicle better suited for year round use, then the same concern may not exist.