It is never an enjoyable experience to file bankruptcy but for some people it is the best or only option they have for their financial situation. One common question many people have during this process is whether or not their car can be repossessed as part of the bankruptcy proceedings. You will be glad to know that in most cases your car cannot be touched, even if you still owe payments on it. “When you file for Chapter 13 bankruptcy, most creditors are instantly prohibited from continuing collection efforts against you. This is called the “automatic stay.” The automatic stay also prevents your car loan lender from repossessing your car” (nolo.com).
Let’s break this down into the two most common scenarios.
If the bank or institution that gave the loan has not yet repossessed your car and you have completed the process needed to file for bankruptcy, then something known as an automatic stay kicks in. The automatic stay is a regulation that is part of the bankruptcy proceeding, and it prevents the lender from repossessing your car during the time that your case is being heard. The judge gives you your repayment plan and payment amounts and the lender has to accept the new repayment amount and time line. So long as you stay up on the new payment terms, they cannot repossess your car at any time.
Sometimes, your vehicle may be repossessed shortly before your bankruptcy case is heard in court. If this is the case then you will usually be able to get the car back. You will have to wait until the judge decides your case and gives you your repayment amount and schedule. At this time, the lender will commonly be required to return your vehicle and accept the newly arranged payment plan. Then, so long as you stay on top of the payments and do not default on the arrangement they cannot take your vehicle away again.
If you are in the process of filing for Chapter 13 bankruptcy be sure to speak to your attorney about any timelines and concerns you may have – such as vehicle repossession or similar loan related concerns.