If you have fallen behind on paying a number of debts and have decided to file for bankruptcy, you may still be able to protect your car from repossession through either a Chapter 7 or Chapter 13 bankruptcy petition. Once you file for bankruptcy under either of these chapters, the automatic stay goes into effect, preventing all creditors from contacting you in order to try and collect any debts owed, and protecting your car from repossession. In a Chapter 7 proceeding, any creditor who wishes to have the stay lifted and repossess your car in order to fulfill an outstanding debt will have to first obtain the bankruptcy court’s permission. In a Chapter 13 filing, you will likely be able to prevent repossession by including the car payments in your three- to five-year repayment plan for any outstanding debts.
What can I do to prevent my car from being repossessed while in Chapter 7 bankruptcy?
There are several steps you can take to try and prevent creditors from lifting the stay in order to repossess your car. These include:
Curing a default
If you have funds available to catch up on car loan payments and bring them out of default, the lender will likely not repossess the car.
Reaffirming the loan
You may be able to negotiate an agreement with your car loan lender (which must be approved by the court), whereby you sign a new contract reaffirming your commitment to keep paying for the car and remain liable on the debt, and in exchange for which you will be allowed to keep your vehicle. In order to have the agreement approved by the court, you will be required to affirm that the reaffirmation agreement is voluntary, that you understand that the new agreement falls outside of the protection of the bankruptcy case and that your compliance with the repayment terms will not create a financial hardship.
Redeeming the vehicle
You may be able to purchase your vehicle for its current fair market value with a lump-sum payment in a process known as redemption. Redemption is subject to the lender's agreement or the court's approval and, of course your ability to pay.
Is vehicle “redemption” right for me?
If your vehicle is worth significantly less than your current loan balance, redeeming your vehicle may be the right choice. You can redeem your vehicle by paying the creditor the car’s market value, making you the outright owner of the car, at the end of the bankruptcy proceedings. The Bankruptcy Rules require you to list the current value of your vehicle, known as the “replacement value,” in your bankruptcy filings. This is the price that a car retailer would be able to charge for the same car, taking into consideration its age and condition. Licensed or dealership appraisers can provide you with an appraisal value, or you may consult with trade publications.
At BK Lawyers LLC, we know that the prospect of losing your car to repossession is daunting. Contact us to schedule your free initial consultation about different ways to prevent your car from being repossessed by filing bankruptcy.