Motor Vehicle Exemption in Bankruptcy
The California 704 bankruptcy exemption scheme recognizes that people need a car after bankruptcy. Since the policy behind bankruptcy is to allow honest but unfortunate debtors to receive a fresh start, the California Code of Civil Procedure Section 704.010 allows debtors in bankruptcy to exempt up to $3,325 of the aggregate equity in a motor vehicle. If you need to protect your car in bankruptcy contact our bankruptcy attorney on santarosabankruptcy.com. Attorney Michael Benavides can tell you if he can protect your car in bankruptcy.
Execution Sale Proceeds of Car Exempt for 90 days
California Code of Civil Procedure Section 704.010(a)(2) exempts up to $3,325 of the proceeds from the execution sale of a motor vehicle for 90 days. Therefore, if you file for bankruptcy within 90 days of an execution sale involving the sale of your car, up to $3,325 of the traceable proceeds representing your equity in the car should be exempt in your chapter 7 bankruptcy in California. The 90-day time limit to exempt proceeds from the execution sale of your car may require an expedited bankruptcy filing.
The motor vehicle exemption protects your equity in the motor vehicle. Consequently, if your motor vehicle is “underwater,” meaning that your lender has a lien against your car in an amount greater than the value of your car, you have no equity to exempt. However, if you own a car worth $2,500 free-and-clear, you can exempt 100% of your car in bankruptcy.
Courts often look to the “Kelley Blue Book” to determine a car’s value in a bankruptcy. (Our bankruptcy attorney used the Kelley Blue Book many times to determine the value of motor vehicles during his externship in U.S. Bankruptcy Court. The KBB should be used to determine the value of motor vehicles for purposes of California bankruptcy exemptions). Therefore, you should value your motor vehicle according to its corresponding KBB value. If you value your motor vehicle lower than its corresponding KBB value be sure to specifically list the reason(s) for the lower value. For example, if you value your car lower than its KBB value because it does not run and has a broken windshield, be sure to report those facts on Schedule C.