<h2>Attorney explains the difference between auto finance and auto lease payments in a New Jersey chapter 13 case.</h2>
There are three different approaches to paying auto financing in a New Jersey chapter 13 case. The fist approach is to continue to make the regular finance payments directly to the auto finance company during the plan. One may pay the arrears at the time of the filing through the bankruptcy plan, while making the regular payments directly to the company.
The second option is to pay the entire balance due on the financing through the chapter 13. The balance would include any amount that a person is behind with their payments at the time of the filing. The interest rate that must be paid, on the balance depends on various factors, such as when the auto was financed and whether all auto financing debtors are filing for bankruptcy. This option requires the payment of adequate protection, which is explained below.
The other option is to pay to the finance company, the retail value of the auto, plus a fair rate of interest, through the bankruptcy plan. The total amount that must be paid is not the balance that is due, but the amount of the auto’s sale’s value, if the dealer sold the car. The amount of the arrears is not relevant. This option is only permitted if the auto was purchased 910 days prior to the bankruptcy filing. The total amount must be paid through the bankruptcy plan and not directly. This option also requires adequate protection payments.
A trustee may not commence distributing payments to the finance company, through the plan for many months or years. During the period prior to receiving disbursements, the finance company is vulnerable to a loss if the debtor stops making payments, while the debtor is using the auto. In order to prevent such a loss, the finance company is entitled to a monthly distribution, from the trustee, that will at least cover the monthly depreciation of the auto’s value. The monthly payment is called adequate protection payments.
Typically, a New Jersey debtor continues to make regular monthly lease payments, directly to the auto lease company after the bankruptcy filing. If there are lease payment arrears, at the time of the filing, the arrears amount must be paid and cured, through the chapter 13 plan “promptly”. This means that in addition to making monthly lease payments, the trustee payments must be sufficient to cure the arrears within a certain time period that is deemed promptly, by the judge. Each judge may have a different understanding of the number of months or years that is deemed a “prompt cure” under the bankruptcy code. Therefore, the monthly trustee payments must be sufficient to pay the total amount of the pre-filing arrears within the time period that is required by that particular judge.
Contact the NJ.bankruptcy lawyer, Robert Manchel at 866 503 5644 to discuss your questions.