Auto In Bankruptcy

Protecting a car through bankruptcy is an option that many people want to have.
A car loan, like a mortgage, is also a secured debt. However, car loans are treated much differently than mortgages by the Bankruptcy Code. There are a number of reasons for this, not the least of which is that a car depreciates in value from the moment it is driven off a lot, whereas homes tend to appreciate in value. Additionally, real estate, on which a mortgage is placed, is “unique” and has always been treated differently than personal property under the law. This does not mean that a person who files bankruptcy will lose or have to surrender his or her car. In fact, in the vast majority of cases, debtors are able to retain a car during bankruptcy.
In a Chapter 7 filing, debtors must file a “Notice of Intention” with regard to their secured debts. This form lets the secured creditor know what the debtor intends to do with the property on which there is a secured debt. For example, a debtor could decide to surrender the property and no longer pay the creditor anything. If, instead, the debtor decides to keep a car on which there is a lien, he must “reaffirm” the debt. In the simplest terms, a reaffirmation agreement operates as a new post-petition contract with the lender. Because the reaffirmation agreement is post-petition, rather than pre-petition, the debt represented by the reaffirmation agreement is not discharged. If the debtor later defaults on his payments, the creditor can not only repossess the vehicle, but can also proceed to sue the debtor personally.
Reaffirmation agreements can be a real benefit to the Chapter 7 debtor. If enough time passed from when the car was purchased to when the bankruptcy petition is filed, the debtor can reaffirm for the fair market value of the vehicle, rather than the amount owed, if the amount owed is higher. For example, if the car has a value of $5,000.00, but the debtor still owes $10,000.00 pursuant to his pre-petition financing, he can reaffirm for $5,000.00 only, lowering his monthly payments substantially. As this is a remedy unavailable outside of bankruptcy, it is very important to let your lawyer know when you purchased any vehicle on which you have a car payment, so that he may negotiate the best terms for you.
Reaffirmation agreements also help Chapter 7 debtors reestablish credit after the completion of their bankruptcy. Unlike other discharged debt, a reaffirmed debt on a car will be listed on one’s credit report as “paid as agreed”, so each payment can help a discharged debtor prove his or her worthiness to be extended credit in the future.
Chapter 13 debtors are also able to protect their cars through the Plan they file with the court. If a debtor is in arrears – behind on their payments – they can pay the arrears through the plan, and make their current payments outside of the plan, directly to the lender. For example, if a debtor’s monthly payment is $500.00 per month and he is 3 months late, the $1500.00 he owes to the lender can be “cured” through the plan – basically, spread out over 36 to 60 months, while he proceeds to pay the regular $500.00 payment directly to the lender. The Chapter 13 debtor can also reduce the total principal that is due the lender, in the same way that a Chapter 7 debtor can, by “cramming down” the amount which needs to be paid to the fair market value of the vehicle if it is less than the amount owed, and enough time has passed since the vehicle was purchased.
With all of the above, it is important to note that the Bankruptcy Code allows only a certain amount of equity value in a vehicle to be “exempted” by debtors. The necessity of owning a vehicle in order to commute to work and live one’s daily life is understood and addressed by the Code and the court. The desire to own a luxury vehicle, however, is not. A debtor with a Rolls Royce will have a hard time justifying retaining that vehicle when it could either be sold by the trustee to obtain significant funds for the unsecured creditors or when the payments previously made on that vehicle could instead be made to the unsecured creditors through a Chapter 13 plan.
Because the timing of the filing of the petition is crucial to a determination of whether a loan can be “crammed down” and because, in Chapter 7, a Notice of Intention must be timely filed, it is important that debtors communicate clearly with their attorney about their wishes regarding their cars. Additionally, it is important that any Reaffirmation agreement be reviewed, and negotiated if appropriate, by a competent attorney to make sure that the debtor is not only able to retain his vehicle, but can do so under the best possible terms allowed by the Bankruptcy Code.
Robert Manchel, NJ bankruptcy practitioner, will explain your bankruptcy options regarding your auto. Give him a call at (866) 503-5655 to discuss your personal situation.

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.

A New Jersey bankruptcy filing requires the auto finance company to turnover possession of a repossessed vehicle to the debtor (person filing bankruptcy), under certain circumstances.
If the repossessed auto is not sold by the finance company at the time of the bankruptcy filing, the company is required to turnover the vehicle to the debtor. This means that if the auto was transported to another state for auction, the vehicle must be returned after the filing.
However, prior to returning the vehicle, the finance company will require proof of adequate auto insurance coverage that includes the company as the lien holder or loss payee. The required insurance covers the company in the event of damage or loss.
Additionally, as a condition of obtaining possession of the repossessed vehicle, the debtor must have filed a chapter 13 bankruptcy case, and not a chapter 7, which provides for payment of the arrears through a bankruptcy plan over 36 to 60 months. Please note that, although unusual, under certain circumstances, it may be possible to obtain possession of a vehicle in a chapter 7, if the debtor has the ability to redeem the vehicle or pay to the company the total value of the auto.
If you wish to obtain possession of an auto that has been repossessed – and want to speak with a New Jersey Bankruptcy Attorney with almost two decades of experience- give my office a call at 866-503-5455.