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Can I Keep My Car in Bankruptcy?

Many people who meet with us want to know if they can keep their car if they file for Chapter 7 bankruptcy. This is very important because the car is needed for many people to get to work or to school As with most things, the answer is "it depends." However, most people filing Chapter 7 bankruptcy can keep a modest car.

Whether you can keep your car in a Chapter 7 depends on whether you are behind in your car payments, the amount of your car loan, if any, whether you have equity in your car and any available exemptions you can apply to the loan.

You can also keep your car by using one of the bankruptcy options for handling secured debt-redeeming the vehicle or reaffirming the loan. If you don't want to keep your car (which might happen if the payments are too high) you can surrender it in the bankruptcy.

Let us review your unique situation and help you understand how your vehicle will be handled in a Chapter 7 filing. Specifically, we will not recommend anything until we evaluate how your car will be treated in the Chapter 7., but in the meantime, below is some general guidance:

Many of our clients are "upside down" in their vehicle before their Chapter 7 case is filed. This means that their car is worth less than what they owe on it. Thus, it is important to confer with us to determine whether or not it is financially wise to keep your car.

In your Chapter 7 filing, you have three primary options for dealing with your vehicle loan:

  1. Redeem the vehicle. Redeeming a vehicle can save you money, but you must have sufficient cash to make a lump sum payment. If you are upside down on your car, the redemption process allows you to pay your lender the value of your car to satisfy your loan. In other words, if you owe $5000 on your car loan but your car is only worth $3000, you can pay your lender $3000 to keep the car and your loan is considered to be paid in full.
  2. Surrender the vehicle. A debtor who does not want or need to keep possession of their car can voluntarily surrender it back to the lender. The advantage of surrendering a vehicle through the bankruptcy process is that you can discharge any remaining balance owed on the car. The surrender is considered as payment in full to the creditor.
  3. Reaffirm the loan. A reaffirmation agreement is a new contract created between you and the lender of your car loan. By signing the agreement, you agree to remove the car loan debt from being included in your bankruptcy. This means that the debt will not be discharged and you will remain obligated to pay the reaffirmed amount in full.

If you lease your car, your options are different-you can continue with the lease by assuming it in the bankruptcy, or you can terminate the lease by rejecting it.

If you are considering filing a personal bankruptcy and you have questions regarding your vehicle or other assets, contact us to schedule an initial consultation.

We are bankruptcy lawyers who know how to make a difference in your financial situation. We have experience you can rely on and we care about your results. Contact our New Jersey law firm online by filling out the form or by calling 973-323-2953 to schedule a free initial consultation with an attorney at Levitt & Slafkes, PC.

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