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.
If your lender has repossessed but not yet sold your car, truck, van, minivan, motorcycle, SUV, or some other motor vehicle, filing for Chapter 13 bankruptcy could allow you to get your vehicle back.
In Chapter 13 bankruptcy, you'll stand a good chance of keeping your car if you 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
- that you can pay off the car loan, including your missed payments, in your repayment plan.
Find out more about Chapter 13 bankruptcy.
Understanding Repossession
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.
Has the Lender Sold Your Car to a Third Party?
There's not a lot that can be done if your car has been sold to someone else. If the lender sold it to a third party, you usually can't get it back in bankruptcy. But if your car hasn't been sold, filing for Chapter 13 bankruptcy might help you get it back.
Getting a Car Back Using Chapter 13 Bankruptcy
Filing for Chapter 13 bankruptcy is an effective tool when it comes to reversing a repossession. It works by:
- stopping the lender from selling the vehicle, and
- allowing you to catch up on your missed payments through your repayment plan.
Here are the details.
The moment you file your Chapter 13 case, an automatic stay goes into effect that prohibits most creditors from taking actions to collect from you—including the lender from selling your car. The lender won't be able to sell the car without first filing a motion and getting permission from the court.
Will the Lender Return Your Car?
When you file your case, your lender will receive notice of your bankruptcy and will have a chance to review your proposed plan. In many cases, the lender will return the car to you willingly.
If the lender doesn't return your car, you will have to file a motion (or complaint) for turnover and ask the court to order the lender to give the car back.
The Repayment Plan Payments
Not only will you have to make the monthly payment, but you'll have to catch up on the arrearages, too. The good news is that you don't have to pay the past-due amount in a lump sum. You'll be able to spread the missed payments over your three- to five-year repayment plan. Plan to pay the costs associated with the repossession, too.
Some courts let you pay the monthly car payment outside of the plan while others require you to pay it as part of the plan. This distinction is important because you pay a fee to the Chapter 13 trustee of up to 10% for everything the trustee pays to creditors. Depending on the amount of your car payment, paying the car payment as part of the plan can be costly.
You'll start making your payments shortly after filing—even before the court confirms your repayment plan.
Find out more about the Chapter 13 repayment plan.
Reducing Your Loan Balance or Interest Rate in Chapter 13
You'll have to pay interest on your car loan in Chapter 13 but likely at a much-reduced rate. The allowed interest rate fluctuates but it's not unusual for it to be around five or six percent.
Also, you might qualify to reduce the balance owed to the value of the car. You have to own the car for at least 910 days before you can "cramdown" the loan, however.
Find out how a cramdown works in Chapter 13.
