How should I List My Car on the Bankruptcy Schedules?

We recently posted about how the bankruptcy law affects your automobile, and whether or not you will be able to keep it if you file. One of the factors discussed in our previous post is how much equity is in your car (value minus loan balance). But what if the trustee disagrees about the value of your car?

In Schwab v. Reilly, 130 S.Ct. 2652 (2010), the Supreme Court decided that a trustee could auction an item of personal property (kitchen equipment in this case) and pay to the debtor any amount claimed exempt and distribute any excess received to the creditors.

As an example, if you list the value of your car to be $3,000 and claim a $3,000 exemption, then your car is fully exempt under the Federal Exemptions. However, under the Schwab case, if the trustee believes your car to have a value over $3,000, then the trustee can take the car, auction it, give you $3,000 and pay any extra received to the creditors. Considering that in this example you had further exemption available ($225 for a motor vehicle and up to $11,200 in "wild-card"), this result seems unfair, but is within the trustee's powers.

We generally recommend that clients obtain a fair market value for their car from kbb.com, nada.com or edumunds.com rather than guess or estimate the value.

In addition, in order to avoid the scenario in Schwab, when listing your car (or other personal property that is particularly important to you) in the bankruptcy schedules you should claim the exemption up to the maximum amount available by stating in the description of the item that "debtor intends to exempt 100% of fair market value." This is the language suggested by the Supreme Court in Schwab.

UPDATE: The Massachusetts Exemptions have recently changed. For more information read our post on the changes: New Massachusetts Property Exemptions: The Return of 2 Cows, 12 Sheep and 2 Swine.