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Ninth Circuit Finds Car May Be Exempted as Wildcard or as Tool of Trade - In re Garcia

March 18, 2013

At Howard Law, P.C., our Norco consumer bankruptcy lawyers frequently speak to clients who want to keep their cars in a bankruptcy. Cars are vital here in southern California, because it's difficult to get around, particularly on time, without one. So we were interested to see a bankruptcy case involving a debtor's attempt to exempt her 2001 Mercedes 320E sedan from her bankruptcy. In In re Garcia, Angie Garcia claimed the California wildcard exemption for the value of the car, and also moved to avoid the lien on the car, from a loan she took out against its value, under rules exempting "tools of the trade" from bankruptcy. The bankruptcy court disallowed this, but the district court reversed, then remanded for determination of whether a car is a tool of the trade of a real estate agent. The Ninth U.S. Circuit Court of Appeals upheld the district court.

Garcia took out a $22,160 loan in 2006 from Orange County's Credit Union, using her 2001 Mercedes as collateral. When she filed for Chapter 7 bankruptcy, the Mercedes was worth $5,350. She used the wildcard exemption, exempting up to $18,350 in "any property," for the car. She also moved to avoid the credit union's lien under a section of the bankruptcy code permitting avoidance of liens for a tool of the debtor's trade. The bankruptcy court rejected both moves. It said the wildcard exemption couldn't be used for a car because other sections of the California bankruptcy exemptions deal expressly with cars. It used the same logic to reject the designation of the car as a tool of the trade, and further said the legislative history behind the bankruptcy code didn't support avoiding liens on luxury items. The district court disagreed on both counts. It sent the case back to determine whether this could apply to Garcia.

The credit union appealed to the Ninth Circuit, but that court upheld the district court. "'Any' means any," the court said, citing California's bankruptcy exemptions, "and fancy cars are not excluded." Debtors may exempt up to $925 in any personal property and any unused portion of another exemption for certain personal and real property, for a total of $18,350. Similarly, it agreed with the district court that caselaw supports the exemption of cars as tools of the debtor's trade when the vehicle is necessary. Noting that "it remains to be seen whether Garcia's car qualifies as a tool of her trade," the Ninth remanded to the bankruptcy court for an examination of that issue.

Vincent Howard and our Westminster personal bankruptcy attorneys would be interested to see the result of that examination. It's true that real estate agents are frequently on the road, and therefore a car might be considered a tool of the trade. This is true for some other professions as well. Consider a construction company, which must not only travel to job sites but also bring tools and construction materials. The "tools of the trade" exemption can be powerful when a business owner files for bankruptcy, because work-related tools are often the reason for a big loan. Permitting the lender to repossess the tools would disrupt the functioning of the business and thus hurt the borrower's attempts to make a fresh start after bankruptcy. Vincent Howard and our Redlands individual bankruptcy lawyers can advise clients on whether and how their own tools of the trade could be exempted.

If you're overwhelmed by your debt and believe it could take years to pay it off, you should call Vincent Howard and the team at Howard Law to discuss whether bankruptcy is a good choice. You can send us an email or call 1-800-872-5925.

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