How vehicle exemptions work
The vehicle exemption protects your equity in a motor vehicle. Equity is the difference between the car's fair market value and what you owe on it. If you have a car loan and owe more than the car is worth, you have zero equity -- and the vehicle exemption is not even needed.
The federal vehicle exemption under 11 U.S.C. § 522(d)(2) is $4,450. State exemptions vary from as little as $1,000 to over $10,000, and some states have no specific vehicle exemption at all (but may offer a generous wildcard).
Selected state vehicle exemptions
| State | Vehicle Exemption |
|---|---|
| Federal | $4,450 |
| California (System 1) | $7,500 |
| Texas | 1 vehicle per licensed household member |
| Florida | $1,000 (but can use $4,000 wildcard if not using homestead) |
| New York | $4,825 |
| Ohio | $4,450 |
| Missouri | $3,000 |
| Michigan | $3,875 (or federal $4,450) |
| Illinois | $2,400 |
| Pennsylvania | $0 (state law; use federal $4,450) |
Multiple vehicles
Most state vehicle exemptions apply per debtor, not per vehicle. If you own two cars, you can typically only exempt one. The second vehicle would need to be covered by a wildcard exemption or other available exemption. In joint filings, each spouse can exempt one vehicle.
Texas is a notable exception -- each licensed household member can exempt one vehicle, regardless of value.
What if your equity exceeds the exemption?
If your car equity exceeds the exemption, the Chapter 7 trustee could theoretically sell the car. But in practice, the trustee considers the economics: selling a car involves transaction costs, and the trustee must pay you the exempt amount from the proceeds. If the non-exempt equity is only a few hundred dollars, most trustees abandon the vehicle.
You may also be able to use a wildcard exemption to cover the gap, or negotiate with the trustee to pay the non-exempt amount to keep the vehicle.
Most people keep their cars in bankruptcy. Between loan balances reducing equity, exemption amounts, and the practical economics of vehicle sales, trustees rarely take cars in consumer Chapter 7 cases.