One of the most common questions posed to me by potential Chapter 7 bankruptcy clients is, “Can I keep my vehicle after filing Chapter 7 bankruptcy?” The answer to this question, like most legal questions is, “it depends”. As a New Jersey bankruptcy attorney, it is my job to counsel clients on whether or not they can retain their car should they decide to file for Chapter 7 bankruptcy. When consulting with a client, I ask the potential filer the following questions:
Is the fair market value of the vehicle greater than the loan balance?
If you have equity in your vehicle it may be at risk for potential sale by the Chapter 7 trustee. Chapter 7 bankruptcy is designed to “wipe out” your unsecured debts; but there is a catch. If you own property in excess of the Bankruptcy Code’s exemptions, the bankruptcy trustee may sell some of it, with the proceeds going to your creditors. Bankruptcy law allows a filer to keep a certain amount of property away from those creditors. These laws are known as exemptions. In the state of New Jersey, a filer is allowed to have up to $3,450.00 of equity in a vehicle without losing it. If the vehicle has equity in excess of the exemption amount, the trustee may allow you to buy out the equity, and if that is not possible, the vehicle will be sold to pay creditors.
However, even if you have no lien on the vehicle, or are unable to exempt the full amount of the vehicle, the trustee may still abandon it (decide not to sell) if it is not worth much. This happens if the costs associated with selling the property and the trustee’s fee may mean that after the sale, there is little left for creditors. For example, if your vehicle has equity in the amount of $4,000, the trustee will probably let you keep it even though the value is in excess of the exemption amount, because there likely won’t be anything left over after the cost of selling it.
Is the fair market value of the vehicle less than the loan balance?
Many potential filers are “upside down” on their car notes, meaning that the fair market value of the vehicle is far less than the balance of the loan. In situations like these, you do not have to worry about the trustee attempting to sell the vehicle. However, if you wish to retain the vehicle, you must continue making regular payments to your finance company. This leads into the final and sometimes most difficult question to answer.Can you afford to continue making your car payments?
If you are unable to afford your monthly payment or if you just do not want the vehicle anymore, it can be surrendered. Surrendering a vehicle during bankruptcy means you give it back to the creditor and the remaining debt is discharged. You can simply walk away from the vehicle owing nothing. If you can afford to make the payment and want to keep the vehicle, then you can reaffirm the debt. By signing a reaffirmation agreement, you are agreeing to still be responsible for the entire loan amount after the Chapter 7 bankruptcy is discharged. This means that should you default on payments after the case is discharged, the creditor can repossess the car and you will be held responsible for the remaining balance
If you are worried about keeping your vehicle after a Chapter 7 bankruptcy, speak to attorney Robert Manchel to discuss your situation. As an experienced New Jersey bankruptcy attorney, I can explain the options of surrender, reaffirmation, and redemption in greater detail. I will be able to help you plan on how to keep your vehicle well before your Chapter 7 case is filed.