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More than Just a Sweet Ride: A Car May Be Exempt from Bankruptcy Estate Under California’s “Wildcard” Exemption, Appellate Court Holds

Mercedes-Benz_R170_320A debtor in a California bankruptcy case claimed that her car was exempt from the bankruptcy estate under state law. The Ninth Circuit Court of Appeals found that the “wildcard” exemption provided in California law, which allows a debtor to exempt any property up to a certain amount from the bankruptcy estate, applies to motor vehicles. In re Garcia, No. 11-56076, slip op. (9th Cir., Mar. 5, 2013). It further found that the debtor might be able to avoid the lien on the vehicle if it is a tool of the debtor’s trade, and remanded the case to the bankruptcy court to to determine if the Mercedes was a tool of a real estate agent’s trade, or “just a sweet ride.” Id. at 3.

State and federal law allow a debtor to exempt certain property from a bankruptcy estate. The debtor in Garcia worked as a real estate agent in Orange County. In November 2006, she took out a $22,160 loan from a credit union, using her 2001 Mercedes 320E sedan as collateral. In her Chapter 7 bankruptcy filing, she listed the credit union loan’s balance as $12,715.50. She listed the car as having a value of $5,350 and claimed that it was exempt from the bankruptcy estate under the “wildcard” exemption. This exemption allows a debtor to exempt slightly more than $24,000 worth of “any property.” Cal. Civ. Pro. Code § 703.140(b)(5). She also sought to avoid the credit union loan, citing a federal bankruptcy statute that allows avoidance of a “nonpossessory, nonpurchase-money security interest” in exempt property that is a tool of the debtor’s trade. 11 U.S.C. § 522(f)(1)(B)(ii).

The bankruptcy court ruled against the debtor on both claims. With regard to the wildcard exemption, the court held that other sections of California’s exemption laws specifically dealt with automobiles. It similarly ruled that other portions of the federal avoidance statutes dealt with motor vehicles, and that “luxury items” like a Mercedes were not subject to the statute as claimed by the debtor. Garcia, slip op. at 5.

The district court reversed the bankruptcy on both issues, first finding that the wildcard exemption’s application to “any property” should be read literally, and therefore includes cars. Id. It also held that the lien avoidance statute could apply to the debtor’s car, but remanded the case to the bankruptcy court to determine whether the Mercedes was a tool of the debtor’s trade as a real estate agent. The Ninth Circuit Court of Appeals then exercised its authority to consider an appeal of the district court’s ruling.

The appellate court affirmed the district court’s ruling regarding the wildcard exemption with little discussion. It found that the exemption use of the words “any property” meant that it could apply to any property, including “fancy cars.” Id. at 7. It also affirmed that a debtor may avoid certain liens on a “tool of the trade,” which can include a car. In re Taylor, 861 F.2d 550, 553 (9th Cir. 1988). It remanded the case to the bankruptcy court for further review.

When an individual’s debt are greater than they can afford to pay or keep current, they may be able to obtain relief through a bankruptcy filing. Devin Sawdayi, a bankruptcy attorney in Los Angeles, has helped thousands of clients over the past sixteen years to either reorganize their debts or to discharge their discharge debts entirely. To schedule a free and confidential consultation, contact us today online or at (310) 475-9399.

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A Chapter 13 Bankruptcy Can Help You With Your Large Student Loan Debt, Los Angeles Bankruptcy Lawyer Blawg, May 21, 2013

Photo credit: By Montana72 (Own work) [CC-BY-SA-3.0], via Wikimedia Commons.