New Jersey Bankruptcy Blog

We are often asked by our clients what can happen to their vehicles while they are going through a Chapter 13 Bankruptcy case.
A chapter 13 trustee will never sell a debtor’s auto no matter the value. Also, a chapter 13 will permit a debtor to save their auto,  if they are behind with their finance or lease payments.
The filing of a chapter 13 stops the finance company’s ability to repossess the auto. However, immediately upon the filing, the finance company will request proof of auto insurance that adequately covers the finance company as the loss payee or lien holder. If the debtor cannot provide such proof, the finance company will be permitted to repossess the auto.
A chapter 13 debtor has various options regarding their finance payments. A debtor may wish to surrender the auto and classify the financing debt to general unsecured, which is the same as credit card debt. Based on the debtor’s income, expenses, and asset values, the debtor may pay all, none, or a portion of their unsecured debt. If the debtor is current with their finance payments, he may wish to keep the auto and make the monthly finance payments directly to the finance company. Under this scenario, the bankruptcy filing will have no effect on the auto financing.
If someone is behind with their auto finance payments, they may make the regular monthly finance payments directly to the finance company, in addition to paying the arrears through their monthly trustee payments, the same as for mortgage arrears.
If the debtor purchased and financed their auto more than 910 days prior to the bankruptcy filing, he may “cramdown “ the financing debt. This means that the debtor may be able to pay to the finance company only the fair market value of the auto, plus a fair rate of interest, through the bankruptcy payments. Typically, this means that the debtor can keep the auto, by paying less than the balance due on the financing. Also, the debtor can make these payments over a period of 60 months, which may lengthen the payment period that was required under the original financing agreement. Under this scenario, the debtor need not make regular monthly finance payments directly to the finance company, as all payments are paid through the bankruptcy plan.
Also, the debtor may be able to payoff the entire loan, plus a fair rate of interest, through the bankruptcy plan. Under this scenario, the debtor may also, lengthen the time period for repayment of the loan, that extends beyond the original financing agreement. Again, the debtor need not pay the finance company directly.
If the debtor is behind with auto lease payments, he must cure the arrears promptly, through the bankruptcy plan and within the lease expiration period. In addition to paying the arrears through the bankruptcy plan, the debtor must make regular monthly payments to the finance company. The debtor cannot “cramdown” a leased auto.
The bankruptcy lawyer  in NJ., Robert Manchel,  can be reached at 1 (866) 503-5655, to explain how your auto can be saved by filing a bankruptcy case.

We are often asked by our clients what can happen to their vehicles during their Chapter 7 Bankruptcy case.
A chapter 7 trustee will only sell a debtor’s auto if the auto has substantial value. It is unlikely that the chapter 7 trustee will unexpectedly sell a debtor’s auto because the debtor should know the value of the auto and the available exemptions, prior to the filing.
Similar to the liquidation analysis of a house and other assets, the trustee is required to perform a liquidation analysis to determine if he can sell the debtor’s auto(s). The trustee will obtain the fair market value of the auto from his source. Subsequently, the trustee will subtract the finance payoff amount from the value. Thereafter, he will subtract the debtor’s available exemptions in the auto. The exemption amount for one auto is $3,450.00. However, the debtor can use up to $10,850 of unused exemptions of the debtor’s residence, and possibly an additional $1,150.00.
If there is a negative value after the deductions, the trustee is not permitted to sell the auto(s). If there is a positive amount, the trustee may attempt to sell the auto. However, the debtor may prevent the sale, by paying the trustee the amount that would have been received, if the auto was sold. If the debtor wishes to pay the trustee, in lieu of the sale, the funds paid to the trustee, must come from a third party or from the debtor’s exempt funds.
Initially, the filing of a chapter 7 bankruptcy case stops the repossession of an auto. However, if a debtor is behind with their auto payments, the bankruptcy filing will not permit the debtor to save their auto from repossession. In the event that the debtor is behind with their auto finance payments, the finance company will file documents with the court requesting permission to pursue repossession of the auto. The court will permit the finance company to repossess the auto if the debtor is behind with their payments and the trustee is not able to sell the auto.
A Reaffirmation Agreement is an agreement whereby the debtor continues to be obligated and liable to pay the debt, after the bankruptcy case is completed. This means that if the debtor fails to make a payment after the bankruptcy case is complete, the finance company may sue the debtor for the total funds due and repossess the auto, as if no bankruptcy case was filed.
Under the 2005 modified bankruptcy code, the finance company is permitted to repossess the auto, if the debtor fails to sign a Reaffirmation Agreement, which is approved by the court. However, in reality, it is unlikely that a finance company would repossess an auto, in connection with a debtor who is current with the financing.
If the finance company permits the debtor to keep the auto, without signing the reaffirmation agreement, the finance company may only repossess the auto if a debtor falls behind with the payments after the completion of the bankruptcy case. However, if a Reaffirmation Agreement is not approved by the court, the finance company will typically not report to the credit bureaus that the debtor is making timely finance payments.
The debtor always has the opportunity to surrender the auto and discharge the debt to the finance or lease company. The financing or leasing debt will be eliminated or discharged upon the discharge of the case.
Please contact the NJ bankruptcy practitioner, Robert Manchel, at 1 (866) 503-5655, for bankruptcy information.