A question that I often hear from clients is whether they are allowed to keep only one vehicle if they file bankruptcy. This is a common misconception as there is no "one car" rule in bankruptcy. The ability to keep more than one car (or any vehicle) in bankruptcy depends upon the equity in the vehicle. The equity is determined by taking the value of the vehicle and then subtracting any liens on the vehicle. For example, if a vehicle is worth $10,000 and there is $7,500 still owed on the vehicle, there is $2,500 of equity in the vehicle.
When you file bankruptcy, you have the ability to protect the equity in your vehicle (and other assets) by applying available exemptions to your property. The North Carolina exemptions allow you to protect $3,500 worth of equity in a vehicle, per person. In addition, by using the available "wildcard" exemption, which can be applied to any property, you can protect an additional $5,000 worth of equity in a vehicle. Other factors affecting the value of the vehicle, such as mileage, any defects or damage, and whether the title is a salvaged title can also be important. Determining an accurate value for your vehicles can be critical in determining whether they will be protected when you file bankruptcy.
Finally, when you file chapter 13, you are allowed to keep your vehicle regardless of whether there is too much equity in the vehicle. Discussing these factors with a knowledgeable bankruptcy attorney can help you determine the best way to protect your vehicles when you file bankruptcy.