Having to even consider declaring bankruptcy will cause the average person a lot of stress.
After all, nobody likes the idea of their financial mismanagement being exposed to their friends and family.
The idea of then losing your car to repossession is probably more than you can take.
So, can declaring bankruptcy help you when it comes to retaining ownership of your car?
Car Already Repossessed
If your car has already been taken back by the lender, then you have to move quickly. Most lenders will auction your car within a few weeks in an attempt to mitigate their losses.
One of the benefits of filing for Chapter 7 is that it puts an automatic stay on your creditors, preventing them from pursuing you for the debt owed. So, if you file for bankruptcy just after your car was repossessed by the lender, there’s a good chance the automatic stay will prevent them from selling it.
At this point you then have two options:
- Negotiate with the lender – now that you’ve filed for bankruptcy they might be more willing to negotiate a new rate or loan balance because they know the entire amount of the loan could be discharged under a Chapter 7 filing.
- Redeem your car – this basically means buying the car from the lender, based on a fair market value, but you need to pay for your car with a single payment. This must be done through the court, and with the assistance of a “redemption lender”.
If the above fail you could also consider filing for Chapter 13 bankruptcy. This would force the creditor to return your car, allowing you to repay it under your 3 or 5-year repayment plan.
Preventing Repossession Of Your Car
As we mentioned earlier, filing for Chapter 7 bankruptcy puts an automatic stay on your creditors, not only preventing them from pursuing collection activities, but it also prevents them from contacting you.
There are exceptions to this rule though, and creditors can petition the court to take possession of their property even though you have an automatic stay in place.
Your lender does this by filing something called a “motion of relief”, where they will do their best to demonstrate that you are not making timely payments and/or you’re in default on your car loan.
You’ll have 14-days to challenge this motion, and if you don’t the judge might lift the automatic stay to allow repossession of your car.
But the reality is that most lenders want you to keep your car because they make a lot of money from the interest payments. This means they’re open to you suggesting ways to “cure your default”, which means either bringing your repayments up to date, or paying your car loan off in full.
And that’s your opportunity for either negotiating new terms for your car loan, or redeeming your car for a fair market value.
Beware Of Deficiency Balances
In situations where your car has already been repossessed, and you were unable to file for bankruptcy in time, there’s a possibility that you might still wind up owing money on the loan even after your car is auctioned.
This happens when the auction price of your car is less than your total loan value. The creditor then pursues you for the balance between those two values.
The good news is that a Chapter 7 filing will fully discharge this type of debt
Summary
The truth is that most courts don’t want to see you lose access to your car, because it could impact your ability to get to work, and therefore prevent you from further repaying your debts.
If you still have questions about how filing for bankruptcy can help you keep your car, then please consult with an experienced bankruptcy attorney.