by Adam Mack, J.D.
It’s fairly common for my clients to have vehicles for their adolescent (or adult) child’s use. Sometimes the car is owned outright by one or both of the parents. Sometimes the parents are still making payments on the car for their child’s use. In either situation, the parents’ bankruptcy is going to have an impact on the child and his or her use of that vehicle.
At issue is the wording of the Kansas law K.S.A. §60-2304(c), which states that a person filing bankruptcy may claim as exempt his or her “interest, not to exceed $20,000 in value, in one means of conveyance regularly used for the transportation of the person or for transportation to and from the person’s regular place of work” (emphasis added). In other words, if your equity in the vehicle you use is less than $20,000, you can keep your car – but you can only have one car per person filing.
It’s worth noting here that the law is concerned with the asset (meaning the equity you have in the vehicle), not the resale value of the car. So, for example, suppose you have two vehicles, a $3000 car that is paid in full and a $12,000 pickup truck with a loan against it for $11,000. The car is the more valuable asset because the equity is the full value of the car (in this case, $3000), while the equity of the truck is only $1000.
If your name is on the title of the automobile, the law doesn’t care who is driving it and it’s considered yours. By law, any additional vehicles must be surrendered to the trustee and become part of the bankruptcy estate. In practice, though, the trustee does have some discretion in this regard and will sometimes work with you.
In a chapter 7, the goal is liquidation. The trustees are supposed to round up all the assets they can and then have them sold off to pay your creditors. In light of that goal, if you make a reasonable offer to the trustee, he or she might be willing to let you essentially buy back the asset represented by the third car. Your child would then be free to again use the vehicle. (An experienced bankruptcy attorney is invaluable in such negotiations.)
In a chapter 13, the goal is restructuring of debts, so negotiations to keep a third-car asset are significantly more complicated under that form of bankruptcy. The biggest monkey wrench in the works is 11 U.S.C. 1325(a)(4) (sometimes known as the “best interest of the creditors test”). It states, in essence, that the chapter 13 plan with non-exempt assets (such as the equity in a third vehicle) cannot be confirmed unless the creditors are given additional compensation for that asset. Specifically, the compensation must be at least as much as the creditors would have received if you had filed under chapter 7 instead of chapter 13.
The Most Important Part
If you have more than one vehicle in your name (or if you and your spouse together have more than two vehicles between you), your situation will be much more complicated, but an experienced bankruptcy attorney can sometimes help you keep that extra vehicle if you need to.
These articles are for general informational use and do not constitute legal advice. Since laws change over time, it’s possible some articles are out of date and for that reason, we make no representation that the articles are fully accurate. For actual, up-to-date legal advice (including a free consultation), please contact us!