Can I Use Chapter 13 Bankruptcy to Get My Car Back After Repossession?

If your car, truck, van, minivan, motorcycle, SUV, or other motor vehicle has been repossessed (but not yet sold), filing for Chapter 13 bankruptcy may allow you to get it back.

by: , Attorney

If your lender has repossessed (but not yet sold) your car, truck, van, minivan, motorcycle, SUV, or other motor vehicle, filing for Chapter 13 bankruptcy may allow you to get your car back.

To get your car back in Chapter 13 bankruptcy, you typically have to:

  • show the court that you need the vehicle to complete your bankruptcy (for example, you need to drive to work so that you can afford your Chapter 13 plan payments), and
  • pay off the car loan (including your missed payments) in your repayment plan.

Has the Lender Sold Your Car to a Third Party?

When you take out a car loan, you give your lender a security interest (lien) in the vehicle. If you don’t make your loan payments, your lender can repossess your car and sell it to get reimbursed for the money you owe to it.

Depending on the laws of your state, your lender is usually required to wait a certain amount of time and provide you notice before selling your car. If your lender has already sold the car to a third party, you usually can’t get it back in bankruptcy. But if your car has not been sold, filing for Chapter 13 bankruptcy may allow you to get it back.

Chapter 13 Bankruptcy May Allow You to Get Your Car Back

If you file for Chapter 13 bankruptcy, you may be able to get your car back by:

  • stopping the lender from selling the vehicle, and
  • catching up on your missed payments through your repayment plan.

The Automatic Stay Prohibits Your Lender from Selling the Car

The moment you file your Chapter 13 case, an automatic stay goes into effect that prohibits the lender from selling your car. (Learn more about the bankruptcy’s automatic stay.)

This means that the lender can't sell the car without getting permission from the court. In most cases, the court will let you keep your car if:

  • you need the car to make your Chapter 13 plan payments, and
  • you can afford to pay off the loan in your repayment plan.

The Chapter 13 Repayment Plan Allows You to Cure Your Default

Chapter 13 bankruptcy allows debtors to catch up on their missed secured debt payments (such as their mortgages or car loans) through a repayment plan. If you want to get your car back, you will typically have to pay off your car loan (including your prebankruptcy arrears) in your Chapter 13 plan. In most cases, you will also need to pay the costs associated with the repossession. (Learn more about the Chapter 13 repayment plan.)

But until the court confirms (approves) your plan, you must also provide adequate protection to the lender against depreciation (reduction in value) of the vehicle (discussed below).

Adequate protection in Chapter 13 bankruptcy. When you file for Chapter 13 bankruptcy, you propose an initial plan to pay back a portion of your debts. But the court must confirm your plan before the trustee can begin distributing your plan payments to your creditors. This plan confirmation process can take several months. During that time, your car will likely depreciate in value. To protect the lender, you will usually have to make adequate protection payments. (Learn about adequate protection payments in bankruptcy.)

In general, the amount of your adequate protection payments and how you must pay them will depend on:

  • the value of your car
  • your monthly loan payment, and
  • the rules in your jurisdiction.

Will the Lender Return Your Car?

When you file your case, your lender will receive notice of your bankruptcy and have a chance to review your proposed plan. In many cases, the lender may return the car to you willingly.

If the lender doesn’t return your car, you will generally have to file a motion (or complaint) for turnover and ask the court to order the lender to give the car back. The lender may oppose your motion if:

  • you don’t need the car
  • your plan doesn’t adequately protect the lender’s interests, or
  • you don’t have insurance on the vehicle.

Chapter 13 May Also Allow You to Reduce Your Car Loan Balance or Interest Rate

If you qualify for a car loan cramdown, filing for Chapter 13 bankruptcy may even allow you to:

  • reduce the balance of your loan to the value of your car, or
  • lower your interest rate.

But to cram down your car loan in Chapter 13 bankruptcy, you must own the car for at least 910 days (about 2 ½ years) before you file your case and your loan balance must exceed the car’s value. (Learn more about Chapter 13 bankruptcy car loan cramdowns.)

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