If you are behind on your car payments and facing repossession, filing for bankruptcy can help. Filing for bankruptcy will generate an automatic stay, which will stop creditors (at least temporarily) from repossessing the vehicle. Depending on which Chapter of the bankruptcy laws you file under, your options to keep the vehicle will vary.
If you are behind on your car payments when you file for Chapter 7 bankruptcy, your lender may not legally repossess your vehicle. This is because when you file bankruptcy, the automatic stay goes into effect and stops most of your creditors from continuing collection efforts, including repossessions and foreclosures.
You or your attorney should immediately notify your lender of your bankruptcy filing so it stops all collection actions. The court will notify your lender of the bankruptcy, but it will take several days more.
The automatic stay can be taken away. Your vehicle lender can ask the bankruptcy court to lift (i.e. remove) the automatic stay as to the car loan. If you are behind in your payments and don’t have much equity in the car, the court is likely lift the stay. If that happens, the lender can continue with collection actions against you, including repossession of your vehicle.
Even though Chapter 7 bankruptcy will eliminate your personal responsibility on your car loan, it doesn’t have a way to repay past due car payments. Filing for Chapter 7 bankruptcy will not help prevent an eventual repossession of the car if you fail to make arrangements to pay.
This is so because when a lender loans you money to buy a car, the lender requires you to put the car up as collateral to secure repayment of the loan. This creates a secured debt.
A secured debt has two parts: (1) a contract that makes you responsible to pay back the loan; and (2) a document that gives the lender a security interest in the car until you pay off the loan balance. The document creates a lien. Because the lender has a lien attached to your car, if you fail to pay the loan, the lender can enforce the lien by repossessing your car. The lien cannot be discharged in bankruptcy.
If you want to keep the car, you must first find out whether you have equity in the car, and if so, whether you can protect (exempt) it in bankruptcy. You should speak to a qualified bankruptcy professional about what property you can exempt in bankruptcy.
Although it isn’t easy to keep a car in Chapter 7 bankruptcy when you’re behind on the payments, you have options. Here are a few:
Chapter 13 bankruptcy offers several options to help you keep or get out from under your vehicle. Your options include:
Regardless of which option you choose to keep your car in Chapter 13 bankruptcy, the key will be making sure you make all of your Chapter 13 plan payments. If you do not make your Chapter 13 plan payments, you may eventually lose the car.
A qualified bankruptcy professional can review your specific options and advise you on your options to keep your car. To explore your bankruptcy options, contact us today and we’ll be happy to help you.
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