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Bankruptcy May Stop Car Repossession

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If you've fallen behind on your car payments, your creditor may have the legal power to take possession of the vehicle without notifying you. One way some people have stopped repossession is filing bankruptcy.

Filing bankruptcy may:

  • stop repossession and creditor collections
  • allow an owner to retain his/her vehicle
  • stop creditor lawsuits
  • reduce car loan monthly payments/interest

Cars in Chapter 7 Bankruptcy

In Chapter 7 bankruptcy, some owners keep their vehicles and continue making payments, while others surrender the vehicle to eliminate debt.

Reaffirming the Debt

One option in Chapter 7 bankruptcy is to reaffirm the automobile loan. This is done with a reaffirmation agreement, which is a voluntarily contract between the debtor and the car loan creditor.

In this agreement, the debtor agrees to pay the balance owed on the car loan. As long as the payments on the vehicle are made as promised, the vehicle will not be repossessed. However, reaffirmation of debt is not required.

Generally, debt that is reaffirmed is not discharged under Chapter 7 bankruptcy. If car payments are not made after the debt is reaffirmed, the creditor may repossess the vehicle and sue for any deficiency balance after the car is sold at an auction.

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Redeeming the Debt

In Chapter 7 bankruptcy, it is also possible to purchase outright, or redeem, the car by making a lump-sum payment to the creditor that is equal to the car's fair market value.

Under the bankruptcy code, a debtor seeking to redeem a car is required to pay the creditor the replacement retail cost of the vehicle. If the outstanding balance on the car loan is more than the vehicle is worth, the remaining balance will be discharged.

Surrendering the Vehicle

If you're unable to redeem your car loan, or if you can no longer afford to make the monthly payments, you have the option under Chapter 7 bankruptcy to surrender the vehicle to the creditor. With this option, you're rid of both the car and any associated debt.


Cars in Chapter 13 Bankruptcy

Chapter 13 bankruptcy may also prevent vehicle repossession.

910 Claims

If the vehicle was purchased within 910 days (about 2-and-a-half years) of filing Chapter 13 bankruptcy, the debtor will likely be required to repay the entire car loan. However, the interest rate on the car loan may be significantly reduced, which can be a tremendous financial relief.

Cram Down

If the vehicle was purchased more than 910 days before filing Chapter 13 bankruptcy, it is possible to have the debt reduced to reflect the current value of the car. These payments will be made to the creditor over the 3-to-5-year period of the Chapter 13 repayment plan, which often significantly lowers the monthly payment.

Find Out More About Repossession & Bankruptcy

If a car is repossessed, the creditor may sell the car at a discount at an auction and then file a lawsuit for the remaining balance, plus collection expenses. By filing bankruptcy, many people are able to avoid this unpleasant situation and arrange to resolve the debt or surrender the vehicle without liability.

To learn more about your rights in bankruptcy, connect with a local bankruptcy lawyer. Simply fill out our free bankruptcy evaluation form or call toll-free at 877-833-2410 to get started today.

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