Should I Pay Off My Car Before Filing Bankruptcy in New York City?

Like many questions surrounding consumer bankruptcy in New York whether or not you should pay off your car loan before filing for bankruptcy really depends.  If you are financing your car then it is advisable to continue making your monthly payments, but you do not want to pay the car off entirely before filing for bankruptcy.

This can be confusing to many, but it really doesn’t make sense to spend the money paying off your car loan if you are on the verge of bankruptcy.  It’s probably best spent elsewhere.  Most of our clients can’t afford to do this if they are considering bankruptcy.  Beyond spending money that could best be used elsewhere, if you pay your car loan off you are also creating equity in your bankruptcy estate.  Bankruptcy allows you to protect much of your property through provided property exemptions, but there is a statutory limit to what we can protect, so the less equity you have in your car the better.

If you are behind on your car payments Chapter 13 bankruptcy will cure the debt you have through a 3-5 payment plan and allow you to stay in your car.   In a Chapter 13 your car isn’t at risk of being sold, but the equity is protected only to a certain value.  Because of this your attorney might also advise a Chapter 7 Bankruptcy depending on your debt and car situation, and will also be ready to convert a Chapter 7 to a Chapter 13 midway through the process if it becomes advantageous to do so.   With protecting automobiles especially it is crucial to be working with a qualified bankruptcy firm.  To get the best result it is important that your attorney is not trying to simply force a Chapter 7 through the courts when a more sophisticated approach is called for.  For this reason it is best to avoid bankruptcy mills or prep services boasting about how many Chapter 7’s they file every year.  You are better served by a more diligent approach.

If you are driving a jalopy that should have been traded in years ago because you can’t afford a new car and are trying to put as much money towards your credit card debt as possible without making a difference, then please contact the Law Offices of William Waldner before making another car payment.  Arrange a free consultation online or by calling 212-244-2882.  We are a small, personalized firm that offers affordable debt relief assistance for all New Yorkers.

This article is intended for educational purposes only.  By reading this article no attorney-client relationship has been created.