Many consumers who are considering filing for bankruptcy have the same question regarding a possible bankruptcy and auto loan, “Can my car get repossessed when I file for Chapter 7 bankruptcy?” The simple answer is yes; your car loan lender can get the court’s permission to repossess your vehicle during your Chapter 7 bankruptcy. But that’s just the simple answer. There’s action you can take to prevent the repossession of your vehicle.
If you are in an active Chapter 7 bankruptcy filing, the car loan lender is prohibited from repossessing your vehicle or taking action to collect on your auto loan debt in any other fashion. That’s the point of the automatic stay. To repossess your vehicle, the lender would have to get court permission to do so first.
How Do You Stop Your Lender from Getting Court Permission to Repossess Your Car?
When your lender decides to request permission to repossess your vehicle during your bankruptcy, they will have to file a “motion for relief from the automatic stay.” They must show in the motion that you are not making timely payments/are in default on the loan and as a result, their interests are not adequately protected. You will have about 2 weeks in most cases to oppose the lender’s motion for relief from the automatic stay. If you decide to oppose their motion for relief, a hearing will typically take place within thirty days. If you are able to show that the motion was procedurally flawed, for instance, if it was not properly served, etc.) the judge can deny the motion. Another situation that could result in the judge denying the motion would be if you could show that the lender made a mistake (such as misplacing your payments). The judge can then continue the hearing to allow time for you and your lender to negotiate and come to an agreement regarding the vehicle on your own. If there are no negotiations/attempts to cure the defaulted loan, the Chapter 7 bankruptcy judge will probably grant the lender’s request for relief from the automatic stay and they will have the Court’s permission to repossess your vehicle.
If you wish to keep your vehicle and avoid its repossession during Chapter 7 bankruptcy, you have a few options:
- Cure Your Default: If you aren’t in default on your loan, your lender won’t repossess your car.
- Negotiate with the Lender Directly: Most lenders would prefer that you keep your car and continue making payments. They don’t want to repossess it. Many will be open to negotiations as long as they involve payments and accruing interest. They could be willing to reduce your payments or interest rate or even the principal balance rather than repossess the car and see the bankruptcy clear your debt entirely. REMINDER: If you negotiate with your lender in this way it is a reaffirmation of the debt and you will be responsible for the debt as agreed upon even after your bankruptcy discharge.
- Redeem the Car: This, in essence, means to buy back the vehicle for fair market value. To do so, you must file a motion with the court and make a lump sum payment. This could be a good idea if you have a vehicle that is worth significantly less than the loan balance. By redeeming your vehicle with a payment to the lender of market value, you will own the vehicle free and clear when your bankruptcy is completed.
For more information on how to manage your personal property during a Chapter 7 bankruptcy contact the expert southern California bankruptcy attorneys at Westgate Law today.