The law in the State of New Jersey is very clear in relation to bankruptcy and repossession of your personal goods in that once you\’ve filed a petition of bankruptcy no leasing or finance company can pursue any further action against you in terms of collecting debt or repossessing your vehicle. The finance company has absolutely no right to repossess your vehicle at this point and if they have already done so your auto must be returned to you, unless it\’s been sold in the interim. This is relevant even if you, as the debtor, are currently in arrears on your car payments.
When it comes to declaring bankruptcy you basically have two choices – you can either file for Chapter 13 or Chapter 7 bankruptcy.
Filing for Chapter 13 will involve you putting together a plan to repay all your creditors over an extended period of time, usually 60-months or 36-months, or you do also have the choice of selling your home to repay your debts. When filing for this type of bankruptcy you have 3 basic ways of managing your auto debts and they are as follows:
1. On the date of the filing of your bankruptcy petition you as the debtor have to pay a trustee the full amount of arrears that you owe on your car finance over a period of between 36 and 60-months in total. The first of these payments is due on the first of the month after you\’ve filed for Chapter 13 bankruptcy; these payments are referred to as trustee or plan payments. At the same time you\’re paying the arrears to your bankruptcy trustee you are also obliged to continue making the existing finance payments on your car.
2. This method allows you as a debtor to pay the entire balance of your auto finance – done through the bankruptcy plan itself. When following this type of payment plan you can expect to incur extra costs and there is also the issue of interest being added to the final balance payable. The main advantage of doing things this way is that your monthly trustee/plan payment is usually quite a bit less than the finance payments you were making before, and all of the payments to the finance company are handled by the trustee also.
3. Your third option will apply if you purchased your car or other vehicle just prior to filing for bankruptcy and in this scenario you\’ll only wind up paying the replacement value of the vehicle – the value being calculated based on the date of your filing, plus some interest. Typically what happens is that you have to pay the difference between the actual value of the vehicle and the total value of your loan or finance and again the trustee makes these payments to the finance company in your stead.
In short once you stick to the repayment plan your property (i.e. your car) cannot be repossessed by any finance company.
Filing for Chapter 7 bankruptcy means that you can usually save some of your assets from liquidation because once you\’ve filed for Chapter 7 Bankruptcy all creditors are obliged to stop contacting you immediately and any garnishing of your paychecks has to also cease. Generally speaking in a Chapter 7 filing your assets that are liquidated (turned into cash) are distributed among your creditors unless you\’ve included a \”no assets\” clause in your bankruptcy petition, which basically means you have no assets to sell to meet your debts or the assets you have are exempt from this part of the process.
When it comes to maintaining ownership of your car a Chapter 7 filing won\’t help you in this situation if you area in arrears with your car finance payments. In the early stages of a Chapter 7 filing the finance company cannot repossess your vehicle, period. If, however, you fail to amend the arrears immediately the finance company will most likely be given permission by the courts to repossess your vehicle.
It\’s critical that you understand the difference between a Chapter 7 and Chapter 13 bankruptcy petition when it comes to your vehicle and the possibility of it being repossessed.