<h2>New Jersey Lawyer Explains When A Person May Keep An Additional Car In A Chapter 7.</h2>
Typically, a chapter 7 trustee will only sell an asset, such as a car, that is unexempt. Another part of this website explains the bankruptcy code exemptions in detail. The bankruptcy code allows a debtor a fresh start, by permitting an individual to keep certain property. The property that a person can keep is based on the bankruptcy exemptions. If the equity in property is unsubstantial, the New Jersey debtor can keep the property, such as a car. Equity is the property value minus a specific type of lien, such as auto financing. The bankruptcy auto exemption is $3,675.00, for one automobile. A person may be permitted to apply an additional exemption to their auto equity in the amount of $1,225.00, plus up to $11,500.00 that is not used for their residence.
How does this work? If the $11,500.00 exemption is not needed for one’s residence, the debtor can apply this exemption to any property, in any manner, including a car. For example, $2,000.00, $4,000.00 and $5,500.00 of the unused residential exemption may be applied separately to bank account funds, a motorcycle and a car, respectively. By way of another example, a person who owns a car with $10,000.00 of equity, may keep the auto, if they can use their $3,675.00 auto exemption, plus $6,325.00 of their unused residential exemption. If the exemption in property, such as a car, is more than the equity, the person may keep the car because it basically has no sale value. Also, if the financing balance is more than the vehicle’s value, the debtor may keep the car.
Keeping a car does not mean that the debtor meets the chapter 7 discharge criteria. The debtor must meet all of the chapter 7 bankruptcy criteria to obtain a discharge and eliminate debt. The chapter 7 criteria is explained throughout this website. One criterion for a chapter 7 discharge is that the debtors’ household income is less than their necessary and reasonable household expenses. If a person owns an additional car that is not needed and is considered a luxury item, the finance payment for such a vehicle may not be used as a necessary expense. Also, based on this scenario, even though the debtor is unable to pay the finance payment, the trustee and/or the bankruptcy court will not take the car, if the auto is fully exempt, or has no equity. Furthermore, based on the chapter 7 criteria, the debtor should not be able to pay for the luxury auto financing.
In the event that a debtor is not current with his car payments, the New Jersey finance/lease company will be permitted to take the vehicle, even though the trustee and/or the court may not take the vehicle. Under this scenario, the finance company may ask for court permission to repossess the auto, or repossess the auto after the case is complete.
Robert Manchel may be contacted at 866 503 5644.