Automobile Exemption Decision

In re McMillin,  — B.R. –, 2010 WL 3515682 (Bankr. D. Or. 2010).

This is an interesting case for gear heads, auto buffs, and fans of Top Gear.  The question was whether a collection of auto parts that had never been assembled into an automobile could nevertheless be exempted under the Oregon exemption statute.  The parts were for a 1926 Model A Ford, which the Debtor intended to assemble into a completed vehicle.  A couple of important points: 1) there were duplicate parts, 2) but there was only one engine and only one body, 3) the Debtor had never registered the vehicle, and 3) the Debtor had never fully assembled the vehicle.

This case applies Oregon state law, because the Debtor chose to use Oregon exemptions.  Nonetheless, it is relevant to any similar case because – particularly in exemption law – the bankruptcy courts tend to apply certain general principles.  For instance, this case cited a similar case from Iowa.  The court denied the Debtor’s exemption claim, because the Debtor had never assembled the car and had never registered the car.

This is an example of a court applying common sense to exemptions.  A bankruptcy court always walks a fine line on exemptions; because on the one hand, a Debtor must be able to exempt property to get a fresh start, but on the other hand too many exemptions prejudice creditors.  Clearly this was not the Debtor’s sole means of getting to work, instead it was something more akin to a hobby.  Exemptions are meant to guarantee a debtor the basics of life necessary to get a fresh start.  Accordingly, there is an exemption for cars.  There is not, however, an exemption for hobbies; that is unless, there is room in the wild card exemption.  So one part of the judge’s implied analysis was that denying the exemption would not jeopardize the Debtor’s food, shelter, or ability to work.  The other part of the analysis was that at no time had the Debtor ever actually had a vehicle.  At most the Debtor had the potential for a vehicle.  Because the purpose of the automobile exemption is to protect a debtor’s means of transportation, and the Debtor had never actually had a complete vehicle, the court denied the exemption.

The lesson from this case is that a car or other vehicle does not have to be completely assembled or in working order to get an automobile exemption.  But, the Debtor has to be able to show that the car was recently in working condition or will be very soon.  This means that a collection of auto parts cannot be exempted, but a car that needs some work can be exempted.   So if your car is not running, you need to work with your bankruptcy lawyer to make sure that it is properly presented to the court and the trustee for consideration as exempt property.

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