If I file bankruptcy in NJ what happens to my car?

 

A:

Besides your home, your car is often your most necessary asset.  People are concerned that they may lose their car if they file.  However, in most cases, people in bankruptcy can keep their car as a part of their fresh start.

If you own the vehicle outright (i.e. you paid off the loan) then the issue is simple.  There are exemptions you can use to protect the value (trade-in or “wholesale”) of your car (net of any loan balances there may be).  In most instances, these exemptions are enough to protect the car, especially if you still owe a balance on the car loan.

Three Options for Your Car

If you still owe money to a finance company or bank for a loan taken out to buy the car, then things get a little more involved.  Under the Bankruptcy Code, you have one of three (3) choices when it comes to the car and the loan:

1. you can turn in the car with no liability for a repossession deficiency down the road (not really a practical option for most people, as they do need the car);
2. pay off the loan, or redeem it (also not practical, unless there is a small remaining balance); or
3. reaffirm the debt, which would result in the car loan not being wiped out by the bankruptcy (“discharged”), and if the car gets repossessed after the bankruptcy is over, you would be responsible for any deficiency after its sale.

Naturally, this last one should only be done after careful discussion with a lawyer.  Some banks do not require that you take any action, and are happy as long as you make the payments.  This option is called “pay and ride,” and was available to everyone prior to the 2005 changes to the bankruptcy code.  If your bank offers this, great; otherwise, you are left with one of those three choices.

Obviously, this is a decision that can have lasting effects for you well after your bankruptcy case is over.  You should contact me for a free consultation to discuss which choice is best for you.

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Have more questions about bankruptcy?  Get the answers to the most frequently asked questions by downloading my free book, Top Questions People Ask About Filing Bankruptcy in New Jersey.  It will give you the answers you need all in one place.  Then call me at 888-857-8418 or contact me through this site for an appointment for a free consultation to discuss your case.