How Wisconsin’s 120% Vehicle Equity Rule Affects Chapter 7 Filings

Bankruptcy law is full of rules, but when it comes to your car, the question gets personal fast: how much of its value can you protect under the law, and will that be enough to keep it?

Most people don’t realize until they’re in the middle of a case that the answer usually depends on two key factors: the Wisconsin motor vehicle exemption and the way trustees apply a guideline known as the “120% vehicle equity rule.”

This guide explains how that rule works, how much vehicle equity is actually protected, and what really happens when trustees decide whether to sell your car or let you keep it.

Understanding Wisconsin’s Motor Vehicle Exemption

When you file for Chapter 7 in Wisconsin, you can protect up to $4,000 under Wis. Stat. § 815.18(3)(g); that’s the amount you own outright after subtracting any loan balance.

In addition, Wisconsin also provides a consumer goods exemption up to $12,000 in household goods, furnishings, and other personal property under § 815.18(3)(d). If you don’t use the full consumer goods exemption, any unused amount can be applied to increase the protection for your vehicle.

For married couples filing jointly, both the vehicle and consumer goods exemptions can be doubled, which may help protect higher-value vehicles or multiple cars.

The “120% Vehicle Equity Rule” in Practice

The “120% vehicle equity rule” isn’t written into Wisconsin law. Instead, it’s a practical guideline that comes from how Chapter 7 trustees decide whether to sell a vehicle.

Trustees must sell nonexempt property if it produces a meaningful net return for creditors. Selling a car involves costs such as towing, auction fees, storage, and the trustee’s commission.

If those costs plus the exemption amount leave little left over, the trustee might abandon the vehicle. The 120% figure is often used as a shorthand; if your equity is less than roughly 120% of the exemption limit, it may not be worth selling.

Trustees often evaluate whether selling a vehicle will yield a meaningful net return to creditors after exemptions, sale costs, and trustee commissions; this is where the so-called “120% rule” comes in, though it is not part of the statute.

Calculating Vehicle Equity in Chapter 7

To figure out if your car might be at risk, you should take the following steps:

• Step 1: Find the car’s fair market value from a source like Kelley Blue Book or Edmunds.
• Step 2: Subtract your loan balance from that value. This is your equity.
• Step 3: Apply the Wisconsin motor vehicle exemption of $4,000. If you have an unused consumer goods exemption (up to $12,000 total), you can add it here to protect more equity.
• Step 4: If anything remains, it’s nonexempt equity. The trustee may consider selling the car, but they’ll also factor in sale costs like auction fees and commissions. If those costs wipe out most of the nonexempt amount, they may decide not to sell.

Example Calculation

• Fair market value: $9,000
• Loan payoff: $3,500
• Equity: $5,500
• Minus $4,000 motor vehicle exemption = $1,500
• Minus $1,000 unused consumer goods exemption = $500 nonexempt equity
• Sale costs: $400
• Net left for creditors: $100 — too small for a trustee to justify selling the car.

This type of analysis helps you understand your position before filing.

Options If Your Vehicle Has Nonexempt Equity

If your equity is higher than the exemptions allow, you still have options.

• Redemption (§ 722) – Pay the current replacement value of the vehicle in a lump sum to the lender. This works best if your loan balance is higher than the car’s value.
• Reaffirmation – Agree to keep making payments under the same loan terms, keeping the vehicle, but remaining liable for the debt.
• Surrender – Return the car to the lender and have the debt discharged.

Each of these options has different costs, risks, and long-term effects, so it’s important to weigh them carefully and choose the one that best protects both your vehicle and your financial future.

Federal vs. Wisconsin Exemptions – Which to Choose

When filing for bankruptcy, you can choose between federal or Wisconsin exemptions, but not both.

• The federal system offers a $4,450 motor vehicle exemption plus a “wildcard” exemption ($1,475 plus unused homestead exemption) that can protect more vehicle equity.
• Wisconsin’s system is better for people who need the $12,000 consumer goods exemption for other property.

The right choice depends on your specific assets. If your car is your only high-value item, federal exemptions may give you more protection.

Special Scenarios

• Married filers with two vehicles: Doubling exemptions can help protect both.
• Work vehicles: If the car is essential to your job, you may qualify for a tool-of-the-trade exemption.
• Borderline value cases: If the car’s equity is just over the exemption, you may be able to negotiate a small buy-back with the trustee and pay the difference over time.

Vehicle Equity Protection in Wisconsin vs Federal Exemptions (2025)

FAQs

What is Wisconsin’s motor vehicle exemption in bankruptcy?

It allows you to exempt up to $4,000 in vehicle equity, plus any unused consumer goods exemption, to protect your car in Chapter 7.

What is the “120% vehicle equity rule”?

It’s a practical benchmark trustees use to decide if selling your car after exemptions and costs is worth the effort.

Can I keep my car if I owe more than it’s worth?

Yes. If the loan balance is greater than the value, there’s no equity for the trustee to take.

Can I use the federal exemptions instead of Wisconsin’s?

Yes. Federal exemptions may protect more vehicle equity in some cases, especially with the wildcard.

Can my spouse and I double the motor vehicle exemption?

Yes. Joint filers can double both the vehicle and consumer goods exemptions.

What happens if my car’s equity exceeds exemptions?

You can negotiate with the trustee, redeem, reaffirm, or surrender the vehicle.

Conclusion

Whether you drive a paid-off pickup in Green Bay or a financed sedan in Milwaukee, the path to keeping it in Chapter 7 is the same: know your equity, understand your exemptions, and use every protection Wisconsin law allows. The “120% rule” isn’t on the books, but it plays a fundamental role in how trustees make their calls.

If you’re unsure where you stand, the time to find out is before you file. Debt Advisors Law Offices offers free, no-pressure consultations for Wisconsin residents, giving you a clear picture of your options and a plan tailored to your situation. A short conversation today could save you a significant loss tomorrow.