Can You Keep Your Car in Bankruptcy in New Jersey?
Can You Keep Your Car in Bankruptcy in New Jersey?
For most New Jersey families, a car is how you get to work, take the kids to school and run errands. When debt starts piling up, one of the first questions people ask is, “If I file for bankruptcy, will I lose my car?”

The good news is that many people keep their vehicles in bankruptcy. Whether you can depends on how much equity you have in the car, whether you are current on your loan, and which type of bankruptcy you file. Here is what New Jersey filers should know.
Start With Your Car’s Equity
Equity is the difference between what your car is worth and what you still owe on it. For example:
- Car value: $15,000
- Loan balance: $12,000
- Equity: $3,000
Bankruptcy exemptions protect a certain amount of equity in your property. If your equity is fully covered by an exemption, the bankruptcy trustee generally has no reason to sell your car.
How New Jersey Exemptions Apply to Vehicles
New Jersey filers can choose between two sets of exemptions, New Jersey’s state exemptions or the federal bankruptcy exemptions. You must pick one set and cannot mix them.
- New Jersey state exemptions: New Jersey does not have a specific motor vehicle exemption. Its general personal property exemption is $1,000, which can be applied to a car.
- Federal exemptions: The federal motor vehicle exemption protects up to $5,025 in equity. The federal “wildcard” exemption adds $1,675, plus up to $15,800 of any unused homestead exemption, which can also be applied to a car.
Because the federal exemptions are usually more generous for vehicles, many New Jersey filers who do not own a home use them. These dollar amounts are adjusted every three years, so an attorney should confirm the current figures before you file.
Keeping Your Car in Chapter 7 Bankruptcy
Chapter 7 eliminates most unsecured debts, such as credit cards and medical bills. If you have a car loan, the lender still has a lien on the vehicle. You generally have three options:
- Reaffirm the loan: You agree to keep paying the loan after bankruptcy and keep the car. This works best when you are current on payments and the loan is affordable.
- Redeem the car: You pay the lender a lump sum equal to the car’s current value, which may be less than what you owe.
- Surrender the car: If the payments no longer make sense, you can give the car back and have the remaining loan balance discharged.
If you own your car outright, your options depend on whether your equity is covered by an exemption.
Keeping Your Car in Chapter 13 Bankruptcy
Chapter 13 is often the better option if you are behind on car payments. It lets you set up a court-approved repayment plan over three to five years. Chapter 13 can help you:
- Catch up on missed payments over time instead of all at once
- Stop a repossession through the automatic stay that takes effect when you file
- Lower what you pay in some cases. If you bought the car more than 910 days (about two and a half years) before filing, you may be able to reduce the loan to the car’s current value, known as a “cramdown.”
- Protect equity that is above the exemption limit by paying its value through the plan
Chapter 13 can also help homeowners. You can learn more in our blog post, Can You Keep Your House in Chapter 13 Bankruptcy in New Jersey?
What If Your Car Has Already Been Repossessed?
Once a bankruptcy case is filed, the automatic stay stops most collection actions, including repossession. If your car was recently repossessed but not yet sold, you may still be able to get it back, especially in Chapter 13. Timing matters, so it is important to speak with an attorney as soon as possible.
Tips Before You File
- Keep making car payments if you want to keep the car
- Gather your loan statements and a recent estimate of your car’s value
- Make sure your car insurance stays active
- Avoid taking on new car loans or major purchases right before filing
For a full checklist, see What Should You Do Before Filing for Bankruptcy in New Jersey?
Frequently Asked Questions
Will the trustee take my car if I file Chapter 7?
Not if your equity is fully protected by an exemption. If your equity is higher than the exemption allows, the trustee may sell the car, pay you the exempt amount, and use the rest to repay creditors. Chapter 13 may be a better choice in that situation.
Can I keep my car if I am behind on payments?
Often, yes. Chapter 13 allows you to catch up on missed payments over the life of your repayment plan while keeping the car.
Can I keep a leased car in bankruptcy?
In many cases, yes. You can usually choose to continue the lease and keep making payments, or end the lease through the bankruptcy.
Talk to a Livingston, New Jersey Bankruptcy Attorney
Your car is too important to leave to chance. Attorney Stuart M. Nachbar has helped people facing financial hardship for more than 20 years. He can review your loan, your car’s equity and your income to help you choose the right path. Mr. Nachbar proudly serves military members, veterans and their families, as well as clients throughout Essex, Morris, Union, Bergen, Passaic and surrounding counties.
Call the Law Office of Stuart M. Nachbar, P.C. at 973-834-8058 or contact us online to schedule a consultation. You can also learn more about our bankruptcy services.
Disclaimer: This blog is for general informational purposes only and is not legal advice. Reading it does not create an attorney-client relationship. Exemption amounts and bankruptcy rules change, so speak with an attorney about your situation. We are a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy Code.
