Are you contemplating filing for bankruptcy, but are concerned about the impact it will have on your vehicle? Here are answers to some common questions that people have about their vehicles when they are going to file bankruptcy:
Will Your Vehicle Be Seized During the Bankruptcy to Repay Creditors?
Many people mistakenly believe that all their assets will be seized during a bankruptcy process. However, Section 522 of the Bankruptcy Code allows for a debtor in a bankruptcy case to exempt certain assets up to a certain value from collection by the trustee. As it pertains to a motor vehicle, Section 522(d)(2) of the Bankruptcy Code allows a debtor to exempt up $3,775 in value for one motor vehicle. Additionally, debtors have the “wildcard” exemption at their disposal allowing a debtor to exempt additional property. Accordingly, you will need to evaluate how much your car is worth versus the balance owed on the car loan prior to filing for bankruptcy. Your bankruptcy attorney will help you to determine whether you will be able to fully exempt your vehicle through the bankruptcy process.
What If there Is Equity In Your Vehicles after Applying the Exemptions?
If the equity in your vehicles exceeds the allowed exemptions, you still have options for retaining your vehicles. In a chapter 7 bankruptcy, the trustee appointed to administer your case will look to recover the equity in your vehicles. In this scenario, you can buy-out the non-exempt equity in your vehicles from assets outside your bankruptcy estate. A non-exclusive list of options for funding this buy-out include a post-petition loan from a third-party or your non-filing spouse funding the buy-out through his or her individual assets. It is the trustee’s independent decision whether to accept any offer of settlement and any settlement must be approved by the Bankruptcy Court. If the bankruptcy estate is not compensated for the value of non-exempt equity in your vehicles, then the Trustee will likely look to liquidate the vehicles.
On the contrary, in a chapter 13 bankruptcy, there is no liquidation of non-exempt assets. Instead, a debtor must pay through a chapter 13 plan, at minimum, the equivalent of their non-exempt equity in the vehicles. The legal reasoning behind this is that creditors must receive the equivalent of what they would receive in a chapter 7 bankruptcy during a chapter 13 bankruptcy proceeding.
Will My Lease or Finance Agreement Survive My Bankruptcy Proceeding?
When you file a bankruptcy petition, there is a section termed a “Statement of Intentions” where you must disclose what you intend to do with an ongoing lease or finance. Through the bankruptcy case, you can choose to surrender the vehicle and discharge your obligations on the car, which eliminates this ongoing obligation. If you would like to retain the vehicle, then you will need to reaffirm that debt either through a reaffirmation agreement in a chapter 7 bankruptcy or through your chapter 13 plan. The implication of reaffirming a debt is that you are choosing to remain liable on that contractual debt after the bankruptcy has been completed. To reaffirm a debt on a vehicle in a chapter 7 bankruptcy, you must be current or become promptly current on that lease or finance agreement. In a chapter 13 bankruptcy, you can cure the arrears on an ongoing lease or finance over the course of your plan while maintaining your ongoing monthly obligation.
If you are planning to file bankruptcy, it is important to contact an experienced New Jersey bankruptcy attorney to guide you through your options and present you with the potential pitfalls. For questions regarding a potential bankruptcy, call the law firm of Scura, Wigfield, Heyer, Stevens & Cammarota, LLP for a free consultation.
Whether you need to completely eliminate your debt through Chapter 7 bankruptcy, or need to reorganize your credit payments through Chapter 13 or Chapter 11, we are well qualified as a full-service bankruptcy law firm for people in these and other New Jersey counties: Passaic County, Hudson County, Essex County, Bergen County, Morris County, and Sussex County. Call us today at 973-870-0434 or toll free 888-412-5091.