A major concern of people filing for bankruptcy is whether they can keep the property that is important to their daily lives. This includes the vehicle they rely on for transporting themselves and their families for work, education or other vital purposes. Typically, these vehicles are financed, which means they are subject to repossession. The ability to keep a financed vehicle and the method used to keep it depend on whether the bankruptcy is a Chapter 7 or a Chapter 13.

In a Chapter 7 bankruptcy, a car loan can be discharged — that is, wiped out — only if you surrender the vehicle. However, there are multiple ways available for you to keep your car:

• Cover your car equity with a bankruptcy exemption — Certain assets are eligible for exemptions, which means they are not liquidated in order to repay creditors. Under federal law, you can exempt up to $4,450 in equity value in a motor vehicle. If the car’s value exceeds that limit, it may have to be sold and the proceeds divided between you and the bankruptcy trustee.
• Reaffirm the car loan — You agree to continue paying the car loan under new or similar terms. You get to keep your car as long as you maintain your financial responsibility for the loan. This is a good option only if the reaffirmed loan is one you believe you can manage.
• Redeem the vehicle — You pay the lender the current replacement value of the car, which is often less than the amount remaining on the loan. The lender releases the lien and you own the car outright. However, this option may require a significant upfront payment.

In a Chapter 13, you agree to partially repay debts according to a three- or five-year plan. This type of bankruptcy offers major reduction of debt and the ability to retain most if not all of your assets. The following are the basic options available for keeping your financed car:

• Cover the car’s equity with an exemption — You can exempt the equity value of the vehicle up to $4,450. However, you’ll still owe the lender for any nonexempt value. Arrearages can be repaid over the course of your three- or five-year plan, but you must continue with the regular monthly payments.
• Cram down the car loan — You may be able to reduce ("cram down") the loan balance to the car's fair market value. The remainder becomes an unsecured debt that is part of your Chapter 13 plan, so it needs only to be partially repaid. The loan must have been taken out at least 910 days (about 2.5 years) before filing for Chapter 13.

At the Law Offices of James C. Zimmermann in New Jersey, we are experienced in all aspects of bankruptcy, including protection of personal assets. We have offices in Hackensack, Nutley, Wayne, Pompton Lakes and Vernon. To schedule a free initial consultation, call 973-764-1633 or contact us online.