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

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 regain your vehicle. In Chapter 13 bankruptcy, you can keep your car if you can afford to pay the car loan, including your missed payments. Learn the steps involved in recovering a repossessed car in Chapter 13.

How Does Repossession Work?

When you take out a car loan, you give your lender a security interest or “lien” on 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. In most states, you'll remain responsible for any "deficiency" balance or the amount not covered by the sale.

State law also dictates how much notice you'll receive before repossession and other procedures the lender must follow. However, you should be aware that many states don't require you to be given any notice. The lender can peacefully recover a car parked in a public place.

Has the Lender Sold Your Car to a Third Party?

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. However, if that time has passed and the lender has sold your car to someone else, you usually can’t get it back in bankruptcy. But if it hasn’t been sold, filing for Chapter 13 bankruptcy might offer a solution.

Can You Get a Car Back Using Chapter 13 Bankruptcy?

Filing for Chapter 13 bankruptcy reverses a repossession 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 a lender intent on selling your car. The lender won’t be able to sell the vehicle without first filing a motion to lift the stay 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 Chapter 13 plan provides for the lender to be paid what's owed.

If the lender doesn’t return your vehicle, you must file a motion or complaint for turnover, asking the court to order the lender to return the car. Learn how the Chapter 13 plan is calculated.

How Much Are Repayment Plan Payments?

Not only will you have to make the monthly payment, but you’ll also have to catch up on the arrearages. The good news is that you don’t have to pay the past-due amount in a lump sum. You can spread the missed payments over your three- to five-year Chapter 13 plan. But you’ll also need to pay the costs associated with the repossession.

Some courts let you pay the monthly car payment yourself or “outside the plan,” although others require you to pay it as part of the plan. This distinction is important because you pay the Chapter 13 trustee a fee of up to 10% for everything the trustee pays creditors. Depending on the amount of your car payment, paying the car payment as part of the plan can be costly.

Learn how trustees get paid in bankruptcy.

Can You Reduce a Loan Balance or Interest Rate in Chapter 13?

You’ll also pay interest on your car loan in Chapter 13, but it will likely be 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 car's value using the “cramdown” procedure.