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.