Today I had a client ask me how much of a car he could buy with his tax refund, prior to filing bankruptcy.
My immediate question that I have is in regards to the car we would like to purchase now before the BK. I know you mentioned you can protect up to $6K but I need some clarity the value of the car. If our purchase price is $6k to 7K, does the car value also have to be for that amount or under? If so, what book value would it be required to be under?
I responded as follows:
I can protect $6,000 of the equity in one vehicle so long as both names are on the title.
Now let’s say you buy it for $7,500 but we claim that it’s only worth $6,000. Usually the purchase price proves the actual value, so we would be in danger having to pay the trustee $1500 to protect the equity in the new car.
We normally use Kelly Blue Book, private party value.
Now if you are buying a car for $10,000 and putting $6,000 down, then there’s not an issue. We still have a loan for $4,000, so only $6,000 of the vehicle is exposed, and I can protect that.
If tax/title/license is being figured into your purchase price, we can subtract that back out, so if you pay $7,000 for the car, but $1,000 was for tax/title/license, then it’s really only worth $6,000.
Short answer: $6,000 is exempt. Anything over that can create a problem in the bankruptcy.
This is not legal advice. If you need help go to www.robertspaynelaw.com.