Saving your car from a finance and lease company in a chapter 13 case.
A New Jersey chapter 13 bankruptcy case may save an auto from repossession and/or obtain possession, of a repossessed auto, if the auto has not been sold at auction. Initially, the debtor must provide proof of adequate auto insurance that covers the finance company in the event of auto damage. Also, the debtor must create a feasible chapter 13 plan, that properly pays the finance / lease company, pursuant to the bankruptcy code. The information below applies if all people on the loan are debtors in the bankruptcy case. The information below may not apply if all people on the loan are not included in the bankruptcy filing.
OPTION ONE FOR FINANCING
A person can file a New Jersey chapter 13 bankruptcy case and pay the total amount of the finance arrears, at the time of the filing, through a chapter 13 bankruptcy plan. The bankruptcy plan requires monthly payments for a period of 36 to 60 months. In addition to making the monthly trustee payments, the debtor must also pay the regular monthly finance payments, directly to the finance company, on a monthly basis. The debtor must keep current with the bankruptcy plan and their direct monthly finance payments.
OPTION TWO FOR FINANCING
A debtor may save their auto by paying the entire amount that is due on the loan through the bankruptcy plan. This requires the debtor to pay the entire balance of the loan, plus interest, through a monthly bankruptcy payment. This option does not require that the debtor to make monthly finance payments directly to the finance company, in addition to making the payments through the New Jersey bankruptcy plan.
OPTION THREE FOR FINANCING
If a debtor bought the auto with the financing, at the time of the purchase, uses the auto for personal use, and bought the auto 910 days or more, prior to the bankruptcy filing, the debtor may “cram down” the financing debt. A “cram down” permits the debtor to pay, through the bankruptcy plan, only the value of the auto, plus a fair interest rate. For example, if the auto has a value of $15,000.00 and a finance payoff of $20,000.00, the debtor only needs to pay the $15,000.00, plus a fair interest rate. The $15,000.00, plus the fair interest rate, is paid completely through the bankruptcy plan payments. The $5,000.00 balance may be eliminated, in most circumstances. The debtor need not make any payments directly to the finance company. The finance company and the debtor may dispute the actual value of the vehicle.
DEALING WITH A LEASE
A debtor may cure the lease arrears through a bankruptcy plan, in addition to making the regular monthly lease payments to the leasing company. However, the bankruptcy code requires that the lease payments, that are paid through the plan, be paid “promptly”. This means that the lease arrears must be paid, through the plan, within a certain time period, that is deemed “promptly” by each particular judge. The amount of months that is considered “prompt” under the bankruptcy code, has not been established in the New Jersey District Bankruptcy Court. Therefore, each judge may deem a different time period as “prompt”.
In a New Jersey bankruptcy case, the debtor may be required to pay other creditors, through the plan, even though the reason for the filing based on saving an automobile. Certain type of debt, such as taxes and other secured debt may be required to be paid through the plan. Also, a portion of unsecured debt, such as credit card debt may be required to be paid, through the plan, based on various factors.
Robert Manchel may be contacted at 866 503 5644 to discuss your New Jersey bankruptcy questions.