Filing a personal bankruptcy will affect nearly every area of your life – including the car you drive. Despite what you may have heard, however, bankruptcy does not automatically lead to the repossession of your car and the end of convenient mobility. Consumers do have rights under the law, rights that can help them hold onto their cars even while they work to sort out their financial problems.
If you are facing car repossession, bankruptcy or both, we urge you not to just let things go. Contact our experienced bankruptcy attorneys so we can advise you as to the best course of action. We may be able to utilize certain aspects of the law to help you hold on to your car and successfully complete a chapter 7 or chapter 13 bankruptcy.
Repossession Before Bankruptcy
From time to time, we consult with consumers who begin looking at bankruptcy BECAUSE their cars were repossessed rather than as a means of preventing repossession. In such a case, what is done is done. But there still may be a way to get the client’s car back.
If the client chooses, and is eligible for a chapter 13 bankruptcy proceeding, filing the bankruptcy within 21 days of repossession triggers a requirement for the bank to return the car right away. The laws regarding chapter 13 filings make this possible because this kind of bankruptcy is a reorganization proceeding. In other words, the bank must give the consumer the opportunity to reorganize finances and pay the car loan.
Keep in mind that can take three to four business days to get initial bankruptcy paperwork filed. Therefore, waiting until the 18th or 19th day after repossession before contacting an attorney is waiting too long.
Repossession after Bankruptcy
A chapter 13 bankruptcy can prevent a bank from repossessing the consumer’s car as long as a reorganization plan approved by the court include a plan to pay off the outstanding car loan. In simple terms, this means a chapter 13 bankruptcy can forestall car repossession.
As an added benefit, an experienced attorney with a solid reputation in financial reorganization can often negotiate with the lender to reduce the outstanding loan – if not in principal, at least in terms of interest rates. This makes chapter 13 reorganization a powerful tool for preventing repossession.
Repossession in Chapter 7
Repossession in the midst of a chapter 7 bankruptcy is a little bit different. Where chapter 13 is a reorganization proceeding, chapter 7 qualifies as liquidation. This means that under certain circumstances, a car can be repossessed in order to pay the debt.
A consumer may be able to prevent repossession in a chapter 7 proceeding by signing a legal
agreement to continue making car payments even after the bankruptcy is successfully discharged. Any such agreement must be approved by the court. Furthermore, such agreements are offered on a one-time basis. If the consumer signs an agreement and then defaults anyway, repossession is a virtual guarantee.
Bankruptcy does not have to involve the repossession of your car. You can choose to voluntarily give up your car in a chapter 7 proceeding, but there are ways under both types of personal bankruptcies to hold on to your car. This is yet another reason to consult with an attorney if you are facing either repossession or bankruptcy.