One of the worst outcomes of falling into heavy debt is the repossession of a financed vehicle that you depend upon for work and other life necessities. Fortunately, if you choose to file for Chapter 13 bankruptcy protection, you may be able to get your car back.

Chapter 13 is a form of bankruptcy by which you can reduce and reschedule your debt in accordance with a court-approved three- to five-year plan. Debtors resort to this option if they are steady wage earners who can manage to pay off a part of their debt and get back on their feet financially. If you have fallen behind on your car loans and are facing repossession, Chapter 13 bankruptcy gives you several protections.

In the first place, if your car is already repossessed, you can have it returned to you as long as the lender has not already resold it at auction. Once you file for Chapter 13, an automatic stay goes into effect, so the lender has no authority to sell the vehicle. It must be returned to you while the case is pending, provided you have a valid driver’s license and also have insurance on the car.

The next question is how to keep your car. One option is to exempt the vehicle from the reach of your lender. In New Jersey, bankruptcy filers may take advantage of a federal exemption that allows for keeping up to $4,000 of the fair market value of motor vehicles. Since vehicles tend to depreciate fairly quickly, you might be able to exempt your car’s entire value.

Another option is to include your car loan arrears in your repayment plan. This means repaying the overdue amounts over the life of the repayment, in addition to making your current payments each month. However, you might not need to repay the full loan. If the amount you owe is more than the car is worth and you took out the loan more than 910 days before your Chapter 13 filing, we can file a motion to reduce the loan interest and to “cram down” the payments (including arrearages) to match the car’s actual value.

You might also be able to use your car loan to reduce the total amount you must pay to your creditors. Your repayment plan must include all of your disposable income, meaning your income beyond your necessary living expenses. If your car loan isn’t too high, the court might count it as a necessary living expense and exclude it from the calculation of disposable income. That means your monthly plan payments will be less.

The Law Offices of James C. Zimmerman gives trustworthy advice on how Chapter 13 bankruptcy can protect financed vehicles and other assets. Call us at 973-764-1633 or contact us online to schedule a free consultation at any of our five offices, located in Vernon, Wayne, Pompton Lakes, Hackensack and Nutley, New Jersey.