by: Baran Bulkat, Attorney
If you are in default on your car loan your lender can usually repossess your car without giving you any notice. However, a bankruptcy can help you to stop the repossession and even get your car back after repossession. Let’s discuss how bankruptcy can help you to keep or get your car back.
(To learn how repossessions work, see Car Repossession Laws.)
The moment you file bankruptcy, an automatic stay goes into effect which forces your creditors to cease all collection attempts against you. This means that your creditors cannot call you, continue with a lawsuit, repossess, sell, or foreclose on your property. With a few exceptions, you are completely protected by the bankruptcy and creditors must seek court permission before continuing their collection efforts.
If you are in default on your car loan, you may wake up one morning and find your car missing if you wait too long to file bankruptcy. If you think your lender may try to take your car soon and you cannot afford to cure your arrears (payments you are behind on), a bankruptcy may be your best option to stop repossession. A Chapter 13 bankruptcy will allow you to catch up on your car loan arrears and give you three to five years to pay off your loan. In contrast, a Chapter 7 will delay the repossession temporarily and give you a short time (a few months at best) to cure your arrears.
The answer depends on when the car was repossessed and if you are planning on filing a Chapter 7 or Chapter 13 bankruptcy. When your car is repossessed you have a short time (usually less than 2 weeks but this will depend on the lender and the laws of your state) before the lender sells it to someone else. If the car is sold and title passes to a third party, you normally cannot get the car back. However, if the car has not been sold yet, you still have a chance to get it back because the automatic stay will stop the sale. But you must act quickly and file before the sale if you wish to get your car back. So which type of bankruptcy will give you the best shot at getting your car back?
A Chapter 7 is usually not your best bet if you want to get your car back from the lender. This is because Chapter 7 does not allow you to cure your loan arrears. Depending on your lender or your local bankruptcy court, you may be able to negotiate or force the return of your car but you will likely be required to pay all repossession costs and bring your loan account current in a short amount of time which is hard to do for most people.
(To learn more about Chapter 7, see our Chapter 7 Bankruptcy topic area.)
A Chapter 13 bankruptcy is your best chance at getting your car back because it is designed to let you cure your arrears and pay off your cars through a repayment plan. If you file a Chapter 13 after your car gets repossessed, your lender will usually return the car to you voluntarily but you will probably have to pay for the repossession costs (typically a few hundred dollars). If the lender is not being cooperative, then your bankruptcy judge will usually order the lender to return the car to you. However, this might take longer depending on how busy the court is. After you get the car back, you can pay it off through your repayment plan over the next three to five years. (To learn more about how Chapter 13 bankruptcy works, see the articles in Chapter 13 Bankruptcy.)