Many people are overwhelmed by their debt but afraid to consider bankruptcy because they might lose their car or house. When a person files for bankruptcy, she must list all her assets. However, many times there is protection for the asset called an exemption, or there is very little equity in the asset. Equity is the difference between what is owed on the lien against an asset and the value of the asset.
For example, a debtor might own a 2010 Kia Sorento worth $10,000.00. If he owes $9,000.00 against the car, the equity is only $1,000.00. In both Missouri and Illinois, the exemption amount for a vehicle is greater than $1,000.00. So long as the debtor continues to pay the lienholder (a process called reaffirmation), the debtor can keep the car.
Many times debtors think they can “keep one car.” That is not the law. The law limits the amount of equity a debtor can have in vehicles.
The exemption for an automobile for a single debtor for a single car in Illinois is $2,400.00. There is also a wildcard exemption in Illinois of $4,000.00 per debtor. If the debtor has very few other assets, he can use available wildcard toward the equity in his car as well.
The exemption for automobiles in Missouri is $3,000.00 per debtor. If a Missouri debtor owns two cars, each with only $1,500.00 in equity, then that equity is protected.
If a debtor’s equity in a car exceeds the exemption amounts, ask your attorney about a chapter 13 bankruptcy in which debtors can keep more assets. Other options may be available as well. However, simply putting the car title in another’s person’s name to avoid losing the car is NEVER an option. Transfers for the true value of the car may work, depending on the situation. Do not transfer assets prior to bankruptcy without getting legal advice.
Debtors also have an exemption for their homestead. In Illinois, the exemption amount is $15,000.00 per debtor. If a married couple owns a home together, the equity in that home is exempt up to $30,000.00. To claim the homestead exemption, a debtor must live in the home.
In Missouri, the exemption amount for a homestead is $15,000.00 per piece of property. Therefore, that amount cannot be doubled for a married couple. Again, to claim the homestead, the debtor must reside at the property.
Bankruptcy exemption laws can be complicated and vary from state to state. Filing bankruptcy requires that debtors disclose all assets and all debts. With proper advice from an experienced bankruptcy attorney, debtors will go into bankruptcy fully informed as to the protection of their assets, and how to properly use exemption laws.