The Effects of Filing for Bankruptcy on Your Car in New Jersey

Filing for bankruptcy can have significant implications for various assets, including your vehicle. In New Jersey, understanding the effects of bankruptcy on your car is crucial, especially if you rely on it for daily transportation. This article explores how different types of bankruptcy filings can impact car ownership and financing.

When you file for bankruptcy in New Jersey, the type of bankruptcy you choose—Chapter 7 or Chapter 13—will influence the outcome for your car. Chapter 7 bankruptcy is often referred to as "liquidation bankruptcy," where non-exempt assets may be sold to repay creditors. In New Jersey, the motor vehicle exemption allows you to protect a certain amount of equity in your car, which can be vital for retaining ownership. As of 2023, the exemption limit is $15,000 for individuals. If your car is valued below this threshold, you can keep it without issues.

However, if your car's equity exceeds the exemption limit, you may need to consider selling it or negotiating with the bankruptcy trustee. It’s important to have a professional evaluation of your car's market value and to document any outstanding loans against it to navigate this situation properly.

Chapter 13 bankruptcy works differently as it is designed for individuals with a regular income to create a plan to repay all or part of their debts over three to five years. In this case, you can often keep your car and include any arrears on the loan in your repayment plan. This means you can continue making your regular car payments while also catching up on missed payments, thus avoiding repossession.

Another critical aspect to consider is the ongoing financing of your vehicle. If you are current on your payments before filing for bankruptcy, Chapter 13 may allow you to retain your vehicle and adjust the loan terms. However, if you are behind on payments, you will still have to address this debt during your bankruptcy proceedings. It is also possible to reaffirm the loan in Chapter 7 bankruptcy, allowing you to keep your car while continuing to make payments, but this also commits you to the original loan terms.

Additionally, if your vehicle is repossessed before filing for bankruptcy, you may have options to recover it. In New Jersey, you can request the return of your vehicle if you file for bankruptcy soon after its repossession. It’s essential to act quickly and consult with your attorney to understand the steps required for retrieval.

After filing for bankruptcy, it’s important to monitor your credit report closely. Although bankruptcy can negatively impact your credit score, it can also provide a fresh start, allowing you to rebuild your credit over time. Making timely payments on your car loan post-bankruptcy can help improve your credit rating.

In conclusion, filing for bankruptcy in New Jersey has specific effects on your car, depending on the type of bankruptcy you file. Chapter 7 may protect your car if it falls within the exemption limits, while Chapter 13 provides a structured repayment plan to keep your vehicle. Understanding these distinctions and working with a knowledgeable attorney can help you navigate the complexities of bankruptcy and protect your essential assets.