A common question clients ask is whether they can sell or trade in their vehicle prior to filing bankruptcy. If using the Florida exemptions your allowed to have $1,000 in equity in your car. If you rent then you would have another $4,000 in exemptions to use on a car or you other personal property. For example, if the loan payoff on your car is $15,000 and the value of your car is $20,000, you would have $5,000 in equity in your vehicle. If you rent, you would owe nothing to the trustee (we could exempt all of the equity in the vehicle).
If you owned a home you would owe $4,000 to the trustee to keep your vehicle. People often ask why they would have to pay the trustee for a car that is paid off. The exemption amounts are a protection against people spending all of their money to accumulate assets then paying nothing back to their creditors when they file for bankruptcy.
The trustee will use Kelly blue book, private party value. We generally recommend obtaining a certified appraisal if you are over the exemption amount since Kelly blue book doesn’t account for a variety of factors such as the actual condition of the vehicle, mechanical issues or whether the vehicle has ever been involved in an accident. Many times once the vehicle is evaluated by an appraiser particularly if it’s an older vehicle with high mileage, the value will often be less than the Kelly blue book value.
If you trade in your car prior to filing bankruptcy you run the risk of having to pay back that amount to the trustee. For example if you received a $6,000 credit for trading in your current vehicle for a new one, the trustee could say you converted a non-exempt asset into an exempt asset so that amount of money would have to be paid to the trustee. All transfers of either personal property including cars or homes have a two year disclosure period. Under most circumstances, unless there is a reason to get rid of the vehicle, such as an immediate emergency mechanical issue, its best to just have your vehicle appraised and not sell it until your case is concluded to avoid such issues.