One of the most common questions we hear from our clients during the initial bankruptcy consultation is, “Can I keep my car if I file bankruptcy?” The short answer, for most people, is yes, if you want to.

Many people mistakenly believe they will be required to turn over their car in bankruptcy. However, Arizona law protects up to $5,000 in equity in a vehicle if you are single filing bankruptcy, and if you are married, you can protect $5,000 each in two vehicles, or you can combine the exemption and protect $10,000 of equity in one vehicle.

Consider this example: John and Jane Smith are filing a Chapter 7 bankruptcy. They own two cars. One is worth $10,000 and is paid off. The other is worth $15,000 but they owe $20,000 on it. The payments are $400 a month and they are current on the payments. What are their options? Since Arizona allows them to combine the $5,000 exemption that each is entitled to, they can use the $10,000 exemption amount to protect the car that is paid off. It’s that simple. They keep the car. So what do they do with the second car? They have two options, keep it (along with the $20,000 debt and $400 a month payment) or give it back to the lender who has a secuity interest in the car. The bank will sell the car at auction (probably for 6 or 7 thousand) and there will be a “deficiency” amount of 13 to 14 thousand. No problem. The deficiency is discharged in the bankruptcy along with their other debts.

The options in a Chapter 13 case are a little more complicated, but the bottom line is, most of our clients keep their car in bankruptcy, but only if they want to.

For more information about the options, check out our Website.