It’s no surprise that the car buying process has gotten out of hand. Car dealerships have become loan dealerships and you, the customer, are the target. Total auto loan debt in the United States has reached $1.64 trillion, as prices for both new and used cars reach historic highs.[1] [2] Many Americans have turned to financing, ~81% of new car buyers and ~37% of used car buyers, have average monthly car payments of $745 and $521, respectively.[3] In fact, 20% of new car loans have reported monthly payments greater than $1,000 and ~22% of borrowers opted for loan periods of 84 months (7 years) in order to be able to afford the monthly payment.[4]
Unfortunately, life is rarely predictable, and no job lasts forever. Volatility in employment, savings, unforeseen expenses, and the overall economy, has left many unable to continue making car payments. If this sounds like your situation, you certainly are not alone – 1.4% of borrowers were at least 60 days behind on auto loan payments during the first quarter of this year, and 2.9% of auto loans are now 90 or more days past-due.[5]
Despite our current economic and inflationary climate, there exist opportunities for relief.
Bankruptcy allows you to choose whether to keep or return the car. You can reaffirm the loan, return the vehicle, retain the vehicle while continuing payments, redeem the vehicle for its current market value – known as a “Cram Down,” or have the interest rate adjusted – known as a Tillman Loan.
In New Jersey, you are not required to reaffirm your car loan in order to keep the car. If you choose not to reaffirm, then there is technically no legal contract at hand, and therefore all you can lose is the vehicle should you be unable to make future payments. You also would not face further liability for any balance still owed. This means that the lender cannot pursue additional payments or deficiencies from you. All they get is the car.
Your missed or late payment would not be reportable to the credit bureaus, and your FICO score would not be harmed. At the same time, your timely payment also does not get reported and will not help raise your FICO score. Whether or not it is wise to continue to make car payments without reaffirming the loan depends on your financial circumstances.
If you reaffirm the car loan, you get to keep the car but you promise to be back on the hook for the loan. The contract’s terms remain as-is. If you choose this option, you risk legal action from the lender for any deficiency in the event you are unable to make payments in the future. In other words, they get the car and can pursue the remainder of the loan balance from you. The only upside to reaffirming the car loan is that timely payments are reported to the credit bureaus and will likely help your FICO score. On the other hand, late or missed payments will also be reported and will harm your score.
If your auto loan is more than 2.5 years old (910 days), you may be able to get full ownership of the vehicle for its current market value – also known as a “Motion to Value” or “Cram-Down.”[6] This may be paid in lump sum to the lender or as a reduced loan amount. In exchange, you get title to the vehicle and owe nothing further. This makes sense when the value of the vehicle is less than the amount you still owe, i.e., the vehicle’s current value is $15,000 but you still owe $30,000 on it. You could pay $15,000 to get title to the vehicle and owe nothing further. This is the best option when you have a previous auto loan that was rolled into your current auto loan, as happens after a trade-in. You may need some spare funds to make the lump sum payment, although there is also financing available for such circumstances.
If your auto loan is less than 2.5 years old (910 days), a “Cram-Down” is not applicable,[7] but another option remains, regardless of how old your auto loan is. This option is to have the loan’s interest rate adjusted – known as a Till Interest Rate Adjustment.[8] This is a method whereby the current market interest rate, known as the “prime rate,” replaces your auto loan’s original interest rate. There is a required addition to that “prime rate” for between 1% and 3% (“Till Adjustment”) as this helps the lender account for the borrower’s remaining future risk of not satisfying the loan. With that said, the Till Interest Rate Adjustment potentially saves the borrower thousands of dollars, going forward.
With such nuances and provisions, your bankruptcy outcome could vary widely, depending upon your circumstances. We recommend reaching out for a consultation as soon as possible. The earlier you get advice, the better off you’ll be.
References
- Center for Microeconomic Data – Federal Reserve Bank of New York, HOUSEHOLD DEBT AND CREDIT REPORT Q1 2025 (May 13, 2025)
- Dennis W. Jansen, Somali Ghosh Sinha, Price Trends for New and Used Cars, Tex. A&M Priv. Enter. Rsch. Ctr. (Feb. 20, 2024)
- Jennifer Brozic, Average Car Payment in 2025 (Jun. 20, 2025)
- Rober Duffer, $1,000 Car Payments Hit Record Highs (Jul. 15, 2025)
- James Ochoa, Delinquent Auto Loans Reach a Record High in Q1 2025 (Jun. 11, 2025)
- 11 U.S.C. § 1129(b)
- 11 U.S.C. § 1325(a)
- Till v. SCS Credit Corp., 541 U.S. 465 (2004)
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