Can Bankruptcy Stop Repossession of My Car?

Generally, creditors can repossess a vehicle without any type of advance notice to you.  Any breach of your agreement with a lien holder may give them the right to take possession of a car.  A breach would normally be a missed payment but it could be many other things, such as failure to keep insurance on the vehicle.  Most creditors will not repossess a vehicle unless you are two or three payments behind, but with a history of missed payments, one missed payment may be enough.

If you are worried about repossession of your car, bankruptcy can help in several ways.

If the car has not yet been repossessed the Automatic Stay [See Automatic Stay] will prevent the lien holder from seizing the vehicle.  Once a bankruptcy has been filed, a creditor is prohibited from seizing any property of the debtor unless the stay is lifted.  If the stay is not lifted, it will continue until a discharge is granted or denied or until the case is dismissed or closed.

If a Chapter 7 Bankruptcy, the creditor can wait until the discharge, dismissal or closure of the case or bring a motion to lift the automatic stay and proceed against the car.  In Chapter 7 you will have three options: 1.  You can make up any payment arrears and reaffirm the debt on the car; 2.  If you cannot afford to pay the loan or if you do not wish to pay more for the car than it is worth to you, you can surrender the vehicle and rid yourself of the personal liability to repay the loan; or 3.  You could redeem, meaning you would pay the entire loan off and keep the car.  In most cases redemption means the debtor will arrange a loan from a new lender to pay off the old loan.

A Chapter 13 Bankruptcy will give the debtor more flexibility.  The debtor can still reaffirm, surrender or redeem, but can also modify the car loan.  Arrears can be made up over a 36 or 60 month period.  If interest on the loan is high it can be trimmed.  In some cases, but not all, the principal owed can be written down to the market value of the car.