Filing a Chapter 13 Bankruptcy case may allow you to force the return a vehicle – even after it has been subject to repossession by the automobile lien holder. To secure the return of your vehicle, it is important that your vehicle has not been sold at auction prior to your filing for bankruptcy relief. Once you succeed in vehicle repossession during bankruptcy in New Jersey, the Bankruptcy Code provides many options for dealing with your vehicle loan.
The filing of a Chapter 13 allows you the opportunity to catch up on delinquent monthly vehicle payments. You can propose a Chapter 13 Plan that provides for you to cure those arrears over a period of 36 to 60 months, while resuming your normal monthly payment directly to the lien holder.
Additionally, if the date that you entered into the vehicle financing contract with your lender is more than 910 days (2 and a half years) prior to filing of the your Bankruptcy petition; the Bankruptcy Code allows you to cram the vehicle down to its present value. For example, this means that if you owe $20,000.00 on the vehicle, but the value of the vehicle is only $10,000.00 based on NADA Blue Book, then you can file a Chapter 13 plan and propose to pay the lien holder the $10,000.00 value plus interest over the life of your chapter 13 plan. 11 U.S.C. 1325(a)(5) and § 506.
The benefit to you of cramming down your vehicle loan is even greater if you are burdened with a high interest rate on your vehicle financing. The United States Supreme Court, in In Re Till, 541 U.S. 465 (2004), held that when you are paying a secured loan through a Chapter 13 Plan, you can cram the interest rate down to the prime interest rate, at the time of filing, plus a factor of one. For example, if the interest rate on your vehicle loan is 14%, but at the time you filed your Chapter 13 petition, the prime interest rate is 5.25%, thus you could propose to pay the lender the $10,000 value of the vehicle at 6.25% interest (Prime plus 1%) over the life of your Plan and the lender would have to accept that treatment.
Even in the event that you have not been paying on your vehicle financing contract for more than 910 days, you can still propose to pay your vehicle through your chapter 13 plan, and lower your interest rate down to the prime plus one rate. Thus, if you are presently in a high interest rate loan, as many of our clients are, a chapter 13 can substantially lower your monthly payment for that vehicle.
If you are delinquent on your monthly vehicle payments at the time you file for Chapter 7, the lien holder will be temporarily stayed from repossessing your vehicle. You will need to specify in your Chapter 7 petition your intention with regard to your vehicle. You can choose to reinstate and reaffirm the debt, redeem the vehicle or surrender the vehicle.
If you are delinquent at the time of filing your Chapter 7 petition, you must be able to bring the account current in order to reaffirm the debt. Reaffirmation means that you are agreeing to pay the debt even though the debt otherwise could have been discharged in your bankruptcy. The lien holder will send you a Reaffirmation Agreement that you will need to complete and return, at which time the lien holder is required to file a motion with the Court to have that Agreement approved by the Court.
The benefit of reaffirming the debt is that you are able to keep the vehicle, as long as you continue to make payments every month. The biggest drawback is that by reaffirming the debt you have effectively removed the creditor from the bankruptcy. This means that if you ever fall behind on your payments and the vehicle is repossessed in New Jersey, the creditor can still sue you for any claimed deficiency (the difference between what you owe and what the vehicle is worth at the time it is repossessed).
The Bankruptcy Code allows you to redeem a debt for personal property that is primarily for personal, family or household use from a lien that is secured by an otherwise dischargeable consumer debt. 11 U.S. Code § 722. This means that the Bankruptcy Code allows you to pay a lump sum to redeem your vehicle from the lien of a secured creditor. However, you must pay the retail value of the vehicle in a one time lump sum, meaning you are not permitted to make payments over time on the vehicle like you can in a Chapter 13.
You can choose to just surrender your vehicle. This means your vehicle is returned to the lien holder and you will receive your discharge from owing the lien holder any additional monies. This is beneficial especially when you may be in an onerous contract for the vehicle, where the vehicle is worth much less than what your owe, the interest rate is high or you just can’t afford the monthly payment.
The information provided here, as with all information on our website, is not intended to provide legal advice to anyone considering bankruptcy. If you are experiencing serious debt problems or discussing these problems with a friend or family member, the easiest way to learn how the bankruptcy laws may protect you is to arrange a Free Case Review with an experienced New Jersey Bankruptcy Lawyer. Learn about your rights and options before you make a decision from attorneys who have helped families and businesses for over 30 years. We know that making that first call is often the hardest step but once made, you can often find relief and a fresh start for your financial future.
If you have concerns about what will happen to your car due to bankruptcy, call a lawyer about vehicle repossessions in New Jersey.
Gillman, Bruton, Capone Law Group
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