TOMS RIVER, NJ – Filing for bankruptcy in New Jersey does not automatically mean losing a vehicle, and both Chapter 7 and Chapter 13 offer paths to protect a car depending on equity, loan balance, and the exemption set a filer selects. New Jersey bankruptcy attorney Daniel Straffi Jr. of Straffi & Straffi Attorneys at Law (https://www.straffilaw.com/how-to-file-for-bankruptcy-and-keep-your-car/) is explaining the key strategies available to individuals and families seeking to retain their vehicles through the bankruptcy process.
According to New Jersey bankruptcy attorney Daniel Straffi Jr., the difference between Chapter 7 and Chapter 13 significantly affects how a court treats a vehicle. Chapter 7, sometimes called liquidation bankruptcy, involves a court-appointed trustee who reviews assets, sells anything not protected by an exemption, and uses the proceeds to pay creditors. If all property falls within exemption limits, the trustee has nothing to sell and the case is classified as a no-asset case. Chapter 13 works differently, allowing filers to keep all property while repaying debts over three to five years through a court-approved plan. “In Chapter 7, the trustee may take a car with equity above exemption limits,” explains Straffi. “In Chapter 13, missed car payments can be folded into a repayment plan while the filer continues driving.”
New Jersey bankruptcy attorney Daniel Straffi Jr. notes that the state allows filers to choose between state and federal bankruptcy exemptions, but they must select one set entirely and cannot mix and match. The federal motor vehicle exemption under 11 U.S.C. Section 522(d) allows filers to protect up to $5,025 in car equity as of April 1, 2025, while the federal wildcard exemption under Section 522(d)(5) provides an additional $1,675 plus up to $15,800 of any unused homestead exemption. A filer who does not own a home could potentially protect over $22,000 in vehicle equity by combining these exemptions. New Jersey’s state exemptions offer significantly less vehicle protection, with only a $1,000 personal property cap under N.J.S.A. Section 2A:17-19 and no dedicated motor vehicle exemption.
Attorney Straffi adds that calculating vehicle equity accurately is a critical first step before filing. “Filers should use the private-party or trade-in value from a resource like Kelley Blue Book, not the retail price, and subtract the outstanding loan balance,” he notes. “A paid-off vehicle worth $8,000 means $8,000 in equity, and combining the federal vehicle exemption with the wildcard may be necessary to protect it fully. Married couples filing jointly may double these federal exemption amounts.”
In Chapter 7, filers with car loans generally face three options for handling the secured debt. Reaffirmation involves signing a new agreement to keep paying under current terms, with the debt surviving discharge and the filer remaining personally liable. Redemption requires paying the car’s current market value in a single lump sum, which can save money when the loan balance exceeds the car’s worth but demands immediate cash. Surrender means returning the car to the lender, with any remaining loan balance typically discharged as unsecured debt. Each option carries different financial and credit consequences that should be evaluated carefully.
Chapter 13 offers additional protections for vehicle owners in New Jersey. The automatic stay under 11 U.S.C. Section 362 stops repossession the moment a petition is filed, and as long as plan payments continue, creditors cannot take the vehicle. Filers who purchased a car more than 910 days before filing may qualify for a cramdown under 11 U.S.C. Section 1325(a), which reduces the loan principal to the vehicle’s current market value and may also lower the interest rate on the secured portion of the claim. For example, a filer owing $15,000 on a car worth $9,000 may have only $9,000 treated as a secured claim, with the remaining $6,000 becoming unsecured debt potentially discharged at the end of the plan.
Car leases are treated differently under bankruptcy law. Under Bankruptcy Code Section 365, a filer may assume or reject an unexpired lease. Assuming the lease means keeping the car and staying current on payments, while rejecting the lease returns the car and any early-termination charge generally becomes dischargeable unsecured debt. Chapter 13 filers may fold missed lease payments into the repayment plan.
Qualification for Chapter 7 in New Jersey requires passing a means test that compares household income to the state median. For cases filed on or after November 1, 2025, the median income figures range from $84,938 for a one-person household to $163,817 for four people. Filers whose income falls below the applicable median may qualify for Chapter 7, while those above the median may still qualify after deducting allowed expenses or may choose Chapter 13 instead. Chapter 13 requires a regular source of income and imposes debt limits, with unsecured debts capped at $526,700 and secured debts at $1,580,125 as of April 1, 2025.
“Choosing the right exemption set and the right chapter can mean the difference between keeping a vehicle and losing it,” advises Straffi. “A thorough review of all assets, debts, and income before filing helps ensure the strongest possible outcome.” The firm notes that every individual filing must complete a credit counseling course within 180 days before filing under 11 U.S.C. Section 109(h) and a debtor education course before receiving a discharge.
For those in New Jersey considering bankruptcy, consulting an experienced attorney may help protect a vehicle and other important assets throughout the filing process.
About Straffi & Straffi Attorneys at Law:
Straffi & Straffi Attorneys at Law is a Toms River-based law firm dedicated to bankruptcy and debt relief. Led by attorney Daniel Straffi Jr., the firm handles Chapter 7 and Chapter 13 filings for individuals and families throughout Ocean County, Monmouth County, and Central and Southern New Jersey. For consultations, call (732) 341-3800.
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