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How Chapter 7 can help New Jersey residents with car loan debt

What happens when a New Jersey resident falls behind on car payments? Whether someone's car is voluntarily surrendered or is repossessed by the lender, there is still a chance that he or she will continue to be responsible for any excess on the outstanding loan. Situations like this are when filing for Chapter 7 bankruptcy may offer some relief. In fact, declaring personal bankruptcy may even help struggling individuals retain possession of their car in the first place.

When a car is repossessed, it is often auctioned off, with the sale price applied toward the remaining loan balance. Since a brand new car's value depreciates drastically after purchase, however, whatever amount the car is sold for usually does not cover the remaining loan balance. When this occurs, the consumer is still responsible for paying the leftover amount, known as a loan deficiency. Typically, though, if a person was unable to make car payments in the first place, he or she will still be unable to pay the loan deficiency amount.

For this reason, some consumers decide to file for bankruptcy at this point, since they are stuck with the remaining debt but no vehicle. When consumers file for personal bankruptcy, any lawsuits that have been filed against them by lenders are stopped, and lenders can no longer pursue remaining debts pending further order of the court. Especially if an individual is already struggling with other debts, this could be the best option.

Alternatively, if an individual is struggling to afford payments but desires to retain ownership of a vehicle, Chapter 7 bankruptcy may still be a viable option. The owner can attempt to redeem the vehicle after filing, allowing him or her to pay only the current value of the car in one lump sum, with the deficiency balance waived. If the filer does not have enough money to pay this lump sum, there is also the option to reaffirm the loan, meaning one agrees to continue making payments on the car. Individuals may have the option to renegotiate for a better interest rate or a lower payment. Regardless of the debt situation New Jersey residents find themselves in, an attorney can offer valuable insight into ways that declaring Chapter 7 bankruptcy can help.

Source: autocreditexpress.com, "How Bankruptcy Can Get Rid of Your Car Loan Deficiency", Accessed on Feb. 12, 2017

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