For most people, filing bankruptcy does not mean handing over the keys to your car.

That is one of the first things I tell people who come into my office worried about bankruptcy. They may be drowning in credit-card debt, behind on bills, or already dealing with collection lawsuits or judgments. But before we talk about any of that, they often have one very practical question: “Am I going to lose my car?”

For many New Jersey bankruptcy filers, the answer is no. But whether you can keep your car depends on its value, how much you owe, whether payments are current, how much equity you have, the exemptions available to you, and whether you file Chapter 7 or Chapter 13.

First: Bankruptcy Is About Your Equity in the Car

Suppose your car is worth $20,000, but you still owe the lender $17,000. Your equity is approximately $3,000. Compare that with someone who owns a $20,000 car free and clear. That person has approximately $20,000 of equity. Those are very different bankruptcy situations even though both people drive a $20,000 car.

The amount you owe does not determine what the car is worth, and the amount you originally paid for it does not determine its current value. We look at the vehicle’s realistic value, the loan payoff, and the equity that remains.

How Much Car Equity Can I Protect?

For bankruptcy cases filed on or after April 1, 2025, the federal motor-vehicle exemption protects up to $5,025 of a debtor’s interest in one motor vehicle. Other federal exemptions, including the so-called wildcard exemption, may sometimes be available to protect additional vehicle equity depending on the debtor’s entire asset picture.

That does not mean a person with more than $5,025 of equity automatically loses the car. Exemption planning requires looking at all of your property before the case is filed, including your home, bank accounts, tax refunds, personal property and vehicles.

What If I Have a Car Loan?

If your car is financed and you want to keep it, we look at both the equity and whether the payment makes sense after bankruptcy. A car worth $25,000 with a $22,000 loan has only about $3,000 in equity. But bankruptcy does not give you a free car: the lender’s lien remains and the loan must be addressed.

What Is a Reaffirmation Agreement?

In a Chapter 7 case, a reaffirmation agreement may be one way to address a financed vehicle. By reaffirming, you agree to remain personally responsible for the debt despite the bankruptcy discharge. Because that can recreate personal liability on a debt that otherwise might be discharged, I do not treat reaffirmation as “just sign here.”

Before recommending reaffirmation, I want to know whether the payment is truly affordable, whether the car is worth what is owed, whether the interest rate is reasonable, and whether keeping the loan supports — rather than undermines — the client’s fresh start.

Sometimes Keeping the Car Is the Goal. Sometimes Getting Rid of It Is the Fresh Start.

Two former clients illustrate why I do not look at bankruptcy as simply a question of, “Can you keep the car?”

Tony had a car payment of approximately $1,100 every month. He simply could not afford it anymore. Eliminating his other debt while leaving him with an $1,100 monthly car payment would not have solved the underlying problem. As part of his bankruptcy, we were able to help Tony surrender the vehicle and get out from under an obligation that no longer fit his budget. That was part of his fresh start.

Joy’s situation was completely different. Joy owned her car with no loan payments, and she needed that vehicle to get to work. Losing it would have created another financial problem rather than solving one. We analyzed the vehicle, her equity and the exemptions available to her. Joy was able to file bankruptcy and keep her paid-off car. That was part of her fresh start.

For one client, the question may be, “How do we protect this car?” For another, it may be, “How do we get you out of this car payment?” The right answer depends on what leaves you in a better financial position after bankruptcy.

What If I Am Behind on My Car Payments?

This changes the analysis. The automatic stay may temporarily stop collection activity after a bankruptcy is filed, but filing does not simply erase missed car payments while allowing you to keep the vehicle indefinitely. If you are behind and want to keep the car, speak with a bankruptcy attorney before a scheduled repossession whenever possible.

Can Chapter 13 Help Me Keep a Car If I Am Behind?

Potentially. Chapter 13 uses a court-supervised repayment plan, generally lasting three to five years. Depending on the circumstances, it can provide tools for dealing with secured debt and arrears that are different from Chapter 7. The right question is not simply “Which chapter should I file?” but “What are we trying to accomplish?”

What If My Car Is Paid Off or Worth More Than the Exemption?

A paid-off car requires careful analysis because there is no loan reducing the equity. A modest-value paid-off vehicle may be straightforward to protect. A more valuable paid-off vehicle requires us to determine its realistic fair-market value, the exemptions available, what other assets also need protection, and whether Chapter 7 is the appropriate strategy.

Do not assume that a car worth more than the motor-vehicle exemption is automatically lost. Likewise, do not assume it is automatically safe. Run the numbers before filing.

How Do We Determine What the Car Is Worth?

The value reported in bankruptcy should be a good-faith estimate of the vehicle’s actual value considering factors such as age, mileage, condition, options and the relevant market. What you originally paid, what a dealer is asking for a similar vehicle, and what you still owe are different numbers. Artificially undervaluing a vehicle is not a bankruptcy strategy.

What If I Own Two Cars?

Owning more than one vehicle does not automatically prevent a bankruptcy filing, but it requires additional exemption analysis. The specific federal motor-vehicle exemption applies to one vehicle, and whether other exemptions can protect additional equity depends on the facts of the case and the other property that must be protected.

What If My Spouse Owns the Car?

Do not assume a vehicle is irrelevant simply because only one spouse is filing bankruptcy. We need to know whose name is on the title, whose name is on the loan, how the vehicle was acquired, and whether one or both spouses are filing. Those facts can affect the analysis.

What If My Car Is Worth Less Than I Owe?

If a car is worth $18,000 and the loan balance is $27,000, there is no positive equity. From an asset standpoint, there may be nothing for a Chapter 7 trustee to sell for creditors because the secured lender must be paid first. But there is still a practical question: should you keep paying $27,000 for an $18,000 vehicle? Sometimes yes. Sometimes bankruptcy is the opportunity to get out from under a loan that no longer makes financial sense.

Could I Give the Car Back?

Yes. Bankruptcy can allow a debtor to surrender a vehicle that has become unaffordable. A fresh start is not measured by how much property you manage to hold onto. It is measured by whether your finances are healthier when the case is over.

What If I Need a Different Car After Filing Bankruptcy?

Filing bankruptcy does not necessarily mean you cannot obtain automobile financing. Tomes Law Firm works with a company that helps people who have filed bankruptcy explore financing for a replacement vehicle. Approval, interest rates, down payments and other terms depend on the individual and the lender, so we cannot promise approval or particular financing terms.

For someone trapped in an unaffordable payment, knowing that replacement transportation may still be possible can be important when deciding whether surrendering the current vehicle makes sense.

What If the Lender Already Repossessed My Car?

Timing matters. Filing before a repossession and filing after the lender has already taken the vehicle can present very different legal and practical issues. If repossession is threatened, do not wait until the car is gone to get advice about your options.

What About a Leased Car?

A leased vehicle presents different issues because you do not own it in the same way you own a paid-off vehicle. We need to review the lease, whether you want and can afford to continue it, and how the lease will be treated in the bankruptcy.

What Happens If the Car Has a Co-Signer?

Tell your attorney if anyone else signed the car loan. Your bankruptcy and the co-signer’s liability are not necessarily the same. Your discharge generally does not eliminate another person’s contractual obligation merely because you filed bankruptcy.

Do Not Transfer the Car to Someone Else Before Filing Bankruptcy

People sometimes panic and think, “I’ll just put the car in my son’s name.” Please do not do that. Bankruptcy requires disclosure of transfers and financial transactions, and transferring property before filing can create a much larger problem. Tell your attorney about the vehicle and let the attorney determine the lawful way to address it.

Do Not Drain Savings or Retirement Money Just to Keep Making the Car Payment

If bankruptcy may be an option, do not automatically empty savings, borrow against retirement, sell property, transfer a vehicle, or make unusual payments just to keep an unaffordable car loan afloat. Talk to a bankruptcy attorney before moving money or assets. Planning before a transaction can be very different from trying to fix the consequences afterward.

A Car Is Often More Than an Asset on a Bankruptcy Petition

When bankruptcy lawyers talk about cars, we talk about equity, exemptions, liens and secured claims. Those things matter. But I also want to know what the car means in your real life.

• Do you need it to get to work?
• Do you need it to take your children to school?
• Do you need it to care for a parent?
• Would you lose income without it?
• Is the payment preventing you from paying your mortgage, rent, utilities or groceries?

A bankruptcy petition contains numbers. A good bankruptcy plan has to consider the life behind those numbers. Before we file, we want to understand what you need your life and your budget to look like when the bankruptcy is over.

Before You File: Gather These Car Details

• Year, make and model
• Approximate mileage and condition
• Realistic current value
• Current loan payoff amount
• Monthly payment and interest rate
• Whether payments are current
• Whose name is on the title
• Whose name is on the loan
• Whether there is a co-signer
• Whether the payment fits your post-bankruptcy budget

Frequently Asked Questions

Can I keep a paid-off car in Chapter 7?

Possibly. The answer depends primarily on the car’s value, your equity, the exemptions available to you and the rest of your asset picture.

Can I keep making car payments after bankruptcy?

Many debtors keep financed vehicles, but the loan and lender’s lien must be addressed properly. Whether reaffirmation or another option is appropriate depends on the case.

Can bankruptcy stop repossession?

The automatic stay can affect repossession activity after a bankruptcy is filed, but timing and the status of the loan matter. A threatened repossession is a reason to obtain advice quickly.

Can I get a car loan after bankruptcy?

Bankruptcy does not automatically prevent future automobile financing. Qualification and terms depend on the lender and the borrower’s circumstances.

What happens if I owe more than my car is worth?

That generally means you have no positive equity, but you still need to decide whether keeping the loan makes financial sense.

Can I keep two cars?

Possibly. Multiple vehicles require a closer exemption analysis because the specific federal motor-vehicle exemption applies to one vehicle.

Can I Keep My Car If I File Bankruptcy in New Jersey?

In many cases, yes. If the vehicle equity can be protected, the payments are manageable, and the loan or lease is properly addressed, keeping a car is very common. But two people driving exactly the same vehicle can receive very different advice because their loan balances, income, assets, payment histories and goals are different. At Tomes Law Firm, we help New Jersey individuals and families understand what bankruptcy would actually mean before they decide whether to file. If you are worried about your car, home, wages or other property, we can review the numbers and explain your options. You should know what your fresh start looks like before you file — not after