Filing for bankruptcy is a consequential process. While it can provide filers with potentially life-changing benefits, there are also some complexities of the process that can be downright stressful. For example, concerns about how bankruptcy might affect certain personal assets, like cars and trucks, are understandably common.
If you are thinking about filing for bankruptcy to regain control of your finances, understanding what will happen to your car when you file for bankruptcy in New Jersey can help you to make an informed decision about your options. Ultimately, the fate of your car in bankruptcy will depend on several factors, including the type of bankruptcy you file, the value of your car and your ability to keep up with any payments you may still owe on an auto loan.
Chapter 7 bankruptcy
Many of a filer’s assets are protected by exemptions in Chapter 7 cases. In New Jersey, you can use either the federal or state exemption system to protect your assets, but not both. New Jersey does not provide filers with an outright vehicle exemption, so it’s worth considering filing federal exemptions. However, this approach is not always as generous in other exemption-related areas of concern. Therefore, you’ll want to seek legal guidance before choosing to file state or federal exemptions overall.
If your equity is higher than the allowed exemption, you may have to pay the difference to the bankruptcy trustee or risk losing your car. Equity is calculated as the car’s current market value minus any outstanding loan balance. For example, if your car is worth $10,000 and you owe $6,000 on it, your equity is $4,000.
Chapter 13 bankruptcy
Chapter 13 bankruptcy allows you to keep your assets, including your car, while you repay your car loan over a three to five-year period, subject to the terms of your court-approved bankruptcy plan.
In both Chapter 7 and Chapter 13, if you are current on your car payments and want to keep the car, you may enter into a reaffirmation agreement with your lender. This agreement essentially removes the car loan from the bankruptcy process, allowing you to continue making payments under the original terms.
Bankruptcy is a complex process, there is no doubt. But, by seeking personalized guidance, you can make informed decisions about whether it may be right for you and your family.