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Consumers Facing Auto Repossession Find Protection in Bankruptcy


Immediately upon the filing of a bankruptcy petition, no automotive financing company, bank or car lending agency may pursue an action, commence an action, or attempt to collect a debt against the debtor (person filing the petition). If an individual is in arrears (behind) with their auto finance payments, the finance company may not repossess the auto. If an auto was repossessed prior to the filing, than after the filing, the finance company must return the auto, if the debtor has sufficient auto insurance coverage and the auto was not sold.

New Jersey residents can obtain answers to questions regarding foreclosure resolution and bankruptcy laws by visiting

Chapter 13 is applicable if the debtor wishes to keep an auto in which there are payment arrears, as of the filing date. If the debtor wants to keep the auto, in a chapter 13 case, the finance payments are required to be paid based on one of three methods.

The first method is as follows. The debtor is required to pay to a trustee (bankruptcy administrator), the total amount of the finance arrears, including all costs and fees, as of the filing date. The arrears are generally paid to the trustee over the life of the bankruptcy, which is generally 36 to 60 months. The monthly payment to the trustee is referred to as a trustee or plan payment. The first trustee payment is due on the first of the month, after the month of the filing. In addition to the trustee payment, the debtor is required to pay regular and timely monthly finance payments, until the entire debt is satisfied. The first monthly finance payment is due on the first date that the finance payment normally comes due after the filing.

The second method permits the debtor to pay the entire auto loan balance, through the bankruptcy plan, over the life of the plan. Under this scenario, generally, there are additional fees, costs, and interest that is added to the balance. However, the monthly auto payment made to the trustee is typically less than the normal pre-bankruptcy monthly finance payment because the plan increases the number of months required to satisfy the loan. The trustee pays the auto finance company and no direct monthly payments are required.

The third method applies to debtors who have purchased the vehicle a specific time period prior to the bankruptcy filing. Under this third scenario, the debtor is able to pay, through the life of the bankruptcy plan, only the replacement value of the auto, at the time of the filing, plus a certain interest rate. There are generally additional fees, costs, and interest that is added to the payment. Typically, the debtor is not required to pay the difference between the vehicles’ value and the loan payoff amount. The trustee and not the debtor would make the payment to the auto finance company. No direct monthly payment to the finance company is required.

The following relates to chapter 7 bankruptcy protection. Generally, a chapter 7 case will not help save an auto from repossession in which the debtor is behind with the finance payments. At the commencement of a chapter 7 case, the finance company may not repossess the debtor’s auto. However, if the debtor is unable to cure the arrears, immediately, the finance company will likely be granted permission to repossess the auto, pursuant to a court application requesting same.

New Jersey residents can obtain answers to questions regarding foreclosure resolution and bankruptcy laws by visiting

For more information on bankruptcy laws in New Jersey, visit

Robert Manchel is a New Jersey, Board Certified Consumer Bankruptcy Attorney, whose practice is limited to foreclosure resolution and bankruptcy law. For more information, please contact Mr. Manchel at (856) 797-1500, 1(866) –503-5655 or go to his web site at

Robert Manchel handles cases from the following counties: Cumberland, Atlantic, Salem, Gloucester, Camden, Burlington, Hunterdon, Somerset, Middlesex, Ocean, Mercer, Monmouth, Philadelphia.

Robert Manchel
The Law Offices of Robert Manchel

Disclaimer: The bankruptcy laws are complex and may be applied differently, in each case, and State. There may be numerous exceptions and variations for each law and rule. Do not rely on the information provided in this article. If you are considering filing for bankruptcy protection or have foreclosure issues, you should consult with an experienced lawyer. We are a debt relief agency. We Help people file for bankruptcy relief under the bankruptcy code.
© 2008 Robert Manchel


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