Most people who we meet with ask if they can keep their car if they file Chapter 7 bankruptcy because they need it to get to work, to school and in general to live their life. Whether you can keep your car in a Chapter 7 depends upon many factors including whether your car is a lease, whether you are current on your car payments and whether any equity you have in the car is exempt.
Most individuals who file Chapter 7 bankruptcy in New Jersey can keep a modest car.
You Are Current on Your Car Payments.
If you are current on your car payments, it is likely that the bankruptcy exemptions will allow you to keep your car if you file Chapter 7.
Is Your Equity Exempt?
If your equity is covered by the exemptions you can keep your car. A Debtor (the person who files bankruptcy) can use the Federal bankruptcy exemptions to exempt an interest of up to $4,000 in one motor vehicle. The exemption only needs to be applied to the debtor’s equity in the car. Equity is the market value of your car less any loans or liens on the car. When the equity in your car is more than $4,000 you may be able to use another exemption such as the wildcard exemption to make up the difference.
- How Much is Your Car Worth? To determine how much equity, if any, you have in your car you must know how much your car is worth and what you owe. In the bankruptcy petition you must list the current value of your vehicle, which is basically the amount you can sell it for considering its age and condition -also referred to as the fair market value. You can find values on websites such as Kelley Blue Book.
- How Much Equity Do You Have in Your Car?
- If you don’t have a car loan. If you don’t owe money on your car (you don’t have a car loan) the equity in your car is the same as your car’s value. For example, if your car is worth $5,000 your equity is also $5,000.
- If you have a car loan. The equity in your car is the amount you have after you sell the car and pay off the car loan. For example, if you sold the car for $10,000 and paid off the $5,000 loan balance you would have $5,000 equity in the car. If you owe as much or more than the car is worth you will not have any equity in the car.
What Happens if You Have Too Much Equity?
If you have equity that is not protected with an exemption, the trustee can sell your car, give you your exemption amount, and distribute the remaining amount to your creditors.
The trustee might also do the following:
- Abandon your vehicle. The Trustee often will abandon the car and let the debtor keep it if after selling the car, paying off the loan, taking costs of sale and Trustee commission, there is little to no money left for creditors.
- Let the Debtor buy the vehicle. Many trustees will allow the debtor to pay for the non-exempt equity in the vehicle.
You Are Behind on Your Car Payments
If you are behind on your car loan payments, you will not be able to keep your car in a Chapter 7 bankruptcy, even if your equity is exempt, unless you pay the arrears or get the lender to agree to some other arrangement.
You Lease Your Car
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.
Keeping Your Car in Chapter 13 Bankruptcy
If you have equity in your car that is not exempt, or are behind on your car payments, Chapter 13 might be a better way to keep your car than Chapter 7.
In a Chapter 13 bankruptcy, you keep your property and pay back some debts in full and others in part through a three or five-year repayment plan. If you want to keep your car in Chapter 13 bankruptcy, you must keep current on your car payments. If you are behind on your payments when you file, you can pay off the arrearage through your Chapter 13 repayment plan.
In some situations, Chapter 13 also provides a way (known as a cramdown) to lower your car payment when your car is worth less than the amount of the loan.
CONTACT LEVITT AND SLAFKES FOR MORE INFORMATION ABOUT CARS AND BANKRUPTCY
If you are considering filing personal bankruptcy and you want to know if you can keep your car, contact us to schedule a free consultation. Shelley Slafkes and Bruce Levitt are bankruptcy lawyers who know how to make a difference in your financial situation. We have the 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, P.C.
We are proudly designated as a debt relief agency by an Act of Congress. We have proudly assisted consumers in filing for Bankruptcy Relief for over 30 years. The information on this website and blogs is for general information purposes only. Nothing should be taken as legal advice for any individual case or situation.