One common bankruptcy myth is that, to satisfy your creditors, you will forfeit most of your property during proceedings. Yet, both federal and state bankruptcy exemptions aim to prevent this outcome. These exemptions allow you to keep certain possessions of yours, so long as they fall beneath a certain value. Among these may be your vehicle, which you have ways to protect whether you file Chapter 7 or Chapter 13 bankruptcy.
Keeping your vehicle in Chapter 7 bankruptcy
If you file Chapter 7 bankruptcy, New Jersey is among the states that allows you to take federal exemptions. This option may make sense if you are trying to protect your vehicle, since New Jersey’s bankruptcy code does not include a motor vehicle exemption. It does include a general personal property exemption, which you can use toward your vehicle. Yet, this will only protect up to $1,000 of equity in it, which is less than what many people have.
By taking federal exemptions, however, you can protect up to $4,000 of equity in your vehicle. You can also use the federal wildcard exemption toward it, which will protect an additional $1,325 of equity. Furthermore, if you do not take the federal homestead exemption in full or at all, you can use up to $12,575 of the unused portion toward protecting your vehicle. Keep in mind, though, that you could still lose your vehicle if you are behind on your auto loan payments, regardless of the amount of equity you have in it.
Keeping your vehicle in Chapter 13 bankruptcy
If you file Chapter 13 bankruptcy, you will satisfy your creditors by repaying your debts over a period of three to five years. Among these debts will be your auto loan. If you follow the terms of your repayment plan, then, you will likely be able to keep your vehicle. You could still lose your vehicle during Chapter 13 bankruptcy, though, if you fail to make your monthly auto loan payments.
You may have owned your vehicle longer than 910 days, and its current market value may be lower than the outstanding balance on your auto loan. If you have, and if it is, you may qualify for an auto loan cramdown as part of your Chapter 13 bankruptcy case. This arrangement will allow you to pay off your vehicle’s current market value instead of your auto loan balance.
Before moving to protect your vehicle during bankruptcy proceedings, you must make sure it makes financial sense for you to do so. A legal professional can help you determine whether keeping it is viable in your circumstances.