Our New Jersey Bankruptcy Attorney Details the Impact of Bankruptcy on Vehicle Ownership
For many, a car is second only to a home regarding essential assets. A common worry among those considering bankruptcy is the possibility of losing their vehicle. However, it's reassuring to know that in most bankruptcy cases, you can retain your cars. This retention is considered a crucial element of the fresh start that bankruptcy aims to provide.
The situation varies depending on whether you fully own your car or still owe payments. The process is relatively straightforward if you own your vehicle outright (meaning the car loan is fully paid off). Bankruptcy law provides for certain exemptions that allow you to protect the value of your car. This value is typically calculated based on the trade-in or "wholesale" value minus any outstanding loan balances. In many cases, these exemptions are sufficient to safeguard your vehicle from being liquidated in the bankruptcy process.
Three Options for Your Car Loan in Bankruptcy
If you still have an outstanding balance on your car loan, there are additional considerations. Owning a vehicle with a pending loan balance may be beneficial in bankruptcy. This is because the outstanding loan reduces the net equity in the car, often bringing it within the range covered by the applicable exemptions. In some instances, you may also have the option to reaffirm the car loan, agreeing to continue making payments to retain the vehicle. This approach can be a strategic part of your bankruptcy plan, allowing you to emerge from the process with both a fresh financial start and the continued use of your essential vehicle.
Under New Jersey's Bankruptcy Code, you have one of three choices when it comes to the car and the loan:
- 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 vehicle)
- Pay off the loan or redeem it (also not practical unless there is a small remaining balance)
- Reaffirm the debt, which would prevent the car loan from being wiped out by the bankruptcy ("discharged"). 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 New Jersey bankruptcy 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 before the 2005 changes to the bankruptcy code. If your bank offers this, great; otherwise, you are left with one of those three choices.
What You Will Need to Do
If a car loan is not handled correctly in your bankruptcy, your car could get repossessed. Don't let that happen to you by missing that issue or others. Instead, hire a bankruptcy lawyer to help you with the process.
If you live in Burlington, Camden, Gloucester, Salem, or Cumberland County and are considering filing bankruptcy, please feel free to call me at 856-432-4113 or contact me through this site for a free consultation in my Woodbury office to discuss your case.
If you want more information about bankruptcy, download my free book, Top Questions People Ask About Filing Bankruptcy in New Jersey.
Not sure if bankruptcy is right for you? Take the quiz to the right to find out more.
