Many people that contemplate filing for bankruptcy don’t realize that the Bankruptcy Code has provisions designed to help those who are behind on their payments prevent repossession and save their vehicle.
To get started, bankruptcy lawyers need a recent copy of your credit score and reports so that they can properly evaluate your potential need for bankruptcy and how your credit scores are being affected and putting your vehicle at risk of repossession.
Keeping Your Car in Bankruptcy
The Automatic Stay: When a person files for bankruptcy, one of the first things that begins is the “Automatic Stay” period. During this period, bill collectors are not allowed to file suit or repossess your vehicle. The Automatic Stay period is specifically designed to protect debtors throughout the bankruptcy filing process.
Exemptions: Chapter 7 Bankruptcy has various bankruptcy exemptions that are specifically designed to help you save your possessions, such as your vehicle. What can be exempt varies depending on what state a person lives in, but these exemptions essentially allow you to keep certain possessions such as houses, cars, wages, and other personal property depending on how much money they are worth.
What If I Have An Auto Loan?
People that do not own their car outright and have to still make payments on the vehicle may be able to keep their cars through a few different options:
Reaffirmation Agreements: When you are making payments on a vehicle and you want to keep it, the bank that you have your loan through can ask you to enter into a new contract to continue paying the car loan. The bank promises that as long as you continue to make payments after the bankruptcy, they will not repossess your vehicle. Keep in mind that when you reaffirm a debt, such as a car loan, that debt is not discharged in bankruptcy. Rather, it follows you after the bankruptcy and, should you fail to make payments, eventually the car can be repossessed. But using bankruptcy to erase debt will allow you to afford your car payments and stop repossession.
Redemption: During a Chapter 7 bankruptcy, a debtor has the right to redeem their car from the bank by making a one-time payment to pay the value of the vehicle off in full and discharge the remainder of the debt. How does this work? Say you owe $20,000 on your car loan, but the value of the car is only $10,000. If you make a $10,000 payment to the bank, you can have the remaining $10,000 debt discharged through your Chapter 7 bankruptcy.
Surrender of the Vehicle: Unfortunately for some people, it is impossible to continue making payments on the vehicle and you must give it back to the bank. This process is called surrendering.
Can I Stop Repossession if I Lease My Vehicle?
Leasing a vehicle is one of the simplest ways to keep your vehicle during bankruptcy. As long as you continue to make the monthly lease payments on time, the vehicle can be kept. If the lease payment is too high for you, you can always choose to surrender the vehicle as well.