Court Says ATVs Not Protected Under Bankruptcy Law

October 25, 2011

By: John Clark

Montana’s Supreme Court recently determined that ATVs are considered motor vehicles, not sporting goods, which leaves the vehicles more exposed during bankruptcy.

Under the new ruling, Montanans who file bankruptcy may be at a higher risk for losing their all-terrain vehicles to their creditors. This is unsettling news in a state where off-road driving is almost as popular as eating and breathing.

According to the Billings Gazette, a federal bankruptcy judge recently asked Montana’s highest court to determine whether ATVs qualified as “sporting goods” or "motor vehicles."

This distinction is important because, under Montana bankruptcy law, filers are able to protect up to $4,500 worth of sporting goods, but this figure only allows for $600 of protection per item.

Moreover, Montana bankruptcy regulations allow debtors to keep one motor vehicle through their bankruptcy protection, but the vehicle can only be worth up to $2,500.

The court was asked to make the distinction after a 2006 bankruptcy case saw a filer attempt to include a Yamaha four-wheeler in his list of items that were exempt from creditors.

The bankruptcy trustee did not agree with this listing, and the state’s highest court agreed with the trustee’s ruling. According to the high court’s decision, motor vehicles under Montana law are defined as vehicles propelled by their own power.

This definition includes four-wheelers, also known as ATVs, if they are "equipped for use on the highway." Thus, even if some ATVs are exclusively used for off-road excursions, their design for use on paved motorways qualifies them as motor vehicles under Montana law.

Apparently, in the 2006 bankruptcy case, the filer had already included a motor vehicle in his list of exemptions, which disqualified him from including his four-wheeler, as well.

In his defense, the bankruptcy filer had argued that his ATV was used solely for recreational purposes, so it should be defined as a "sporting good." This opinion was shared by other Montanans, including ranchers, farmers, and hunters who use ATVs strictly for recreational activities.

The majority of the Montana Supreme Court, however, disagreed with this line of reasoning, noting that the court had to abide by the plain language of Montana law, which clearly stated that self-powered vehicles with four wheels were motor vehicles.