Filing Chapter 7 bankruptcy in Arizona? What about your multiple cars?

I am a bankruptcy attorney and recently some clients asked me what would happen to their cars when they file for Chapter 7 bankruptcy. They are married and have three cars. One of the cars belongs to their daughter, but the title is in their name. The bankruptcy code generally (specifics vary from state to state) provides an exemption for each adult filing bankruptcy to keep one car. However, there are a few caveats.

First of all, in Arizona, each adult who files bankruptcy is allowed only $5000 equity per car. That means if you have paid off your car completely, and the value of the car is over $5000, you may not be able to keep it. Some people take out title loans in order to reduce the equity in their car when they file bankruptcy. To find the value of your car, look up the private party sale value on Edmund's.

If you are still making payments on your car, you may be more likely to keep it. For example, if you still owe $5,000 on your car, and your car is worth $10,000, you will be fine since you only have $5,000 equity in the car.

If you own more than one car per adult, you may be able to keep a third car provided you have little or no equity in it. For example, if you owe $5000 on a third car, but it is only worth $5000, the bankruptcy trustee is not going to seize it. However, you may want to talk to your auto lender and make sure with a "reaffirmation agreement" that they do not intend to seize it after your bankruptcy is discharged.