Filing for Chapter 7 bankruptcy in New Jersey can help eliminate overwhelming debt, but many people worry about what will happen to their assets, including their car. Whether you can keep your vehicle depends on several factors, including the amount of equity in the car, available exemptions, and your ability to stay current on payments.

How Chapter 7 Bankruptcy Affects Car Ownership

Chapter 7 bankruptcy is a liquidation process, meaning that non-exempt assets may be sold to repay creditors. However, both federal and New Jersey state laws allow exemptions to protect certain property, including vehicles, up to a specific value.

• Equity in Your Car: If you own your car outright, the court will assess how much equity you have. If your equity falls within the allowed exemption limits, you can typically keep your vehicle.
• New Jersey Vehicle Exemptions: New Jersey allows filers to use either state or federal exemptions. The federal motor vehicle exemption is $4,450 (as of 2023), meaning you can protect up to this amount of equity in your car. If you owe more on your car loan than its current value, there may be no equity for the trustee to seize.
• Wildcard Exemption: If the motor vehicle exemption is not enough to cover your car’s equity, you may use part of the federal wildcard exemption (up to $1,475 plus any unused portion of the homestead exemption) to protect additional value.

What Happens If You Still Owe Money on Your Car?

If you are financing your car, you generally have three options in a Chapter 7 bankruptcy case:

1. Reaffirm the Loan: This means you agree to continue making payments under the existing loan terms. The lender will not repossess the vehicle as long as you stay current.
2. Redeem the Car: If you have the funds, you may pay a lump sum to purchase the car at its fair market value, potentially saving money if the loan balance exceeds its actual worth.
3. Surrender the Vehicle: If you can no longer afford payments or the car is worth less than you owe, surrendering it as part of the bankruptcy can help eliminate the debt.

Avoiding Repossession

Filing for Chapter 7 bankruptcy triggers an automatic stay, which temporarily prevents lenders from repossessing your car. However, if you fall behind on payments and do not reaffirm the loan, the lender can request permission from the court to repossess the vehicle.

Speak with a Bankruptcy Attorney in New Jersey



At Juan C. Velasco, Esq., we help individuals navigate bankruptcy and protect their assets. Every case is different, and understanding how bankruptcy laws apply to your specific situation is essential. If you're considering filing for Chapter 7 bankruptcy and are concerned about keeping your car, contact us to discuss your options.