Filing for Chapter 7 bankruptcy in New Jersey can provide relief from overwhelming debt, but many individuals worry about whether they can keep their car during the process. The answer depends on several factors, including the value of the vehicle, available exemptions, and any outstanding loan balance.

Understanding Vehicle Exemptions in New Jersey



When you file for Chapter 7 bankruptcy, most of your assets become part of the bankruptcy estate. However, New Jersey allows debtors to protect certain property through exemptions. You can choose between federal and state exemptions, and in many cases, exemptions can be applied to your car to help you keep it.

• Federal Exemption: Under federal bankruptcy exemptions, you can protect up to $4,450 of equity in your vehicle (as of 2023). If the car’s equity is below this amount, it is safe from liquidation. If your equity exceeds the exemption, the trustee may sell the vehicle to repay creditors.
• Wildcard Exemption: If your car’s equity exceeds the vehicle exemption, you may be able to use a wildcard exemption, which protects additional personal property.
• State Exemption: New Jersey’s state exemptions are more limited, so many debtors opt for the federal exemption system.

What Happens If You Have an Auto Loan?

If you are still making payments on your car, you will need to decide whether to reaffirm the loan, redeem the vehicle, or surrender it:

• Reaffirmation: You agree to continue making payments under the existing loan terms, keeping your car as long as you stay current on payments.
• Redemption: You pay the lender a lump sum equal to the vehicle’s fair market value to retain ownership.
• Surrender: If the loan is unaffordable, you can voluntarily return the car and discharge the remaining balance in bankruptcy.

Keeping Your Car in Chapter 7 Bankruptcy

If your car’s equity falls within the applicable exemption limit and you are current on your loan (if applicable), you should be able to keep your vehicle. However, if the equity exceeds exemptions or the loan is unaffordable, alternatives such as reaffirmation or redemption may be necessary.

At Carroll Law Firm, P.C., we assist New Jersey residents in navigating the bankruptcy process and protecting their assets. If you are considering Chapter 7 bankruptcy and want to understand your options for keeping your car, contact us for legal guidance.