Vehicle Repossession and Chapter 13 Bankruptcy

Vehicle Repossession and Chapter 13 Bankruptcy

by | Apr 21, 2016 | Bankruptcy, Chapter 13

Cars have provided modern society with independence and freedom of movement for more than a century. Having a car relieves stress because public transport is unreliable. Applying for a car loan can be a great option when you don’t have enough savings to buy a car.

If you missed payments several times, the lenders might repossess your car. Apart from losing the car, you stand to lose the money you had paid to the lenders.

One reason for the overwhelming increase in vehicle repossessions is the rise of subprime vehicle loans. Subprime auto loans are offered to borrowers with poor credit histories. Higher interest rates and fees accompany these loans to make up for potential losses caused by high default rates.

Sub-prime borrowers account for nearly 1/3 of new car loans in the United States. Sub-prime borrowers will undoubtedly be saddled with the highest interest rates (15% – 20%) and the most extended loan terms (60 – 72 months).

A Chapter 13 bankruptcy will stop repossession and allow the borrower an opportunity to pay the loan back over 3-5 years, often at a significantly reduced interest rate. So how does filing Chapter 13 bankruptcy stop car repossession by lenders? Which other benefits do you get through filing for Chapter 13 bankruptcy? What if the lenders already repossessed your car?

This article has all the answers and more information on how the Cherney law firm can help you when facing car repossession.


How Does The Automatic Stay Stop Car Repossession?


After you file Chapter 13, the bankruptcy court puts the automatic stay in place. An automatic stay is an order that prevents debtors from attempting to collect a debt, especially secured debt.

In this situation, the lender is only allowed to repossess your car after the court lifts the court order. Consequently, lenders are prohibited from harassing you with phone calls, emails, or debt collection agents.

However, the automatic stay does not stop criminal actions or cases like child custody. Nevertheless, you no longer have to fear car repossessions or foreclosure sales as long as the automatic stay is in place.


When Can’t the Automatic Stay Help?


The Chapter 13 bankruptcy process may assist you in making parts of your car loan unsecured in certain situations. There are several vehicle repossession case examples where the process is smooth and relatively easy.

An automatic stay will not help if you file for bankruptcy shortly after the court dismisses your previous Chapter 13 petition. Additionally, if you reject a personal property lease, the automatic stay lifts on the rejection date.

In addition, your creditor can request the court to lift the automatic stay so that they can continue to collect debts during your bankruptcy proceeding. In most cases, if lenders can prove they stand to lose money, they can have a good chance of winning the motion.

An attorney who understands vehicle repossession and Chapter 13 bankruptcy can help you as your case progresses. Also, a bankruptcy lawyer can advise you about how to avoid creditors’ traps before the case ends.


Other Benefits of Chapter 13: Reduce Car Payments


If you are worried about car repossession, it means that you feel you may no longer be able to afford the monthly car payment. Chapter 13 bankruptcy might be a viable option if you have a loan balance greater than the car’s value.

The first one is stopping lenders from repossessing the car. Once that worry is out of the way, there is still the issue of high monthly payments to clear the vehicle loan.

The good news is that the bankruptcy code allows you to reduce a high-interest rate. The creditor is entitled to receive the prime interest and 1 or 2 extra points. If the prime interest rate is 3%, you can pay 5%. You can also reduce the car loan balance to the car’s value.

Renegotiating loan terms is called a cramdown. The following are the limitations of cramdowns:

  • Cramdowns do not apply to a mortgage on your principal home.
  • You cannot use cramdowns for a recent property purchase, such as a car loan, during the 910 days before filing a bankruptcy case.
  • Cramdowns do not apply when a bankruptcy court dismisses Chapter 13 bankruptcy cases.

If your case is dismissed, the loan reverts to its original terms, and creditors have a right to collect the total sum owed at the initial interest rate. It is also essential to respect and follow the repayment plan you agreed upon after your Chapter 13 bankruptcy case was successful.


How Do Repayment Plan Payments Work?


If your car was repossessed by a lender shortly before you filed Chapter 13 bankruptcy, you could get it back. You will need to include the arrears in your payment plan and show that you can afford your monthly payments. In addition, you need to prove to the court that your car is necessary for your Chapter 13 bankruptcy, for instance, driving to work so that you can earn income to make your payments.

After the court issues an automatic stay, the lender must return the repossessed vehicle. If they fail, you should file a complaint so the court can order them to return your vehicle.

Once your car is returned to you, it is important to keep making your monthly payments as well as the arrears. Past-due payments do not have to be cleared in one lump sum. Arrears should be repaid over a period of 3-5 years. It is also necessary for you to pay the repossession costs.

Depending on the bankruptcy judge’s terms, you can pay the monthly car payment as part of or outside the plan.


What if the Lender Sold the Car After Reposessing it? 


Despite filing for Chapter 13, you cannot get the vehicle back if the lender sells it before your filing. In car repossession and bankruptcy cases, it is important to act quickly. Otherwise, your creditors will have more time to repossess and resell the property. Do not wait! Contact a skilled bankruptcy attorney as soon as possible.


How Can Matthew Cherney Help You in a Chapter 13 Bankruptcy Case?


The qualified lawyers at Cherney Law Firm are ready to represent you, provide guidance, and take care of every detail. We can dedicate our time to properly investigating every possible avenue of debt relief for you before filing for bankruptcy.

We can review your case and analyze all the issues before advising whether Chapter 13 bankruptcy suits you. We can also handle your Chapter 13 bankruptcy case from start to finish.

Timing is essential, so contact us when you need help with bankruptcy, vehicle repossession, and debt restructuring.

Matthew Cherney


At Cherney Law Firm LLC, clients can expect the highest quality legal representation alongside thoughtful counseling and attention to detail. Mr. Cherney dedicates his time to properly investigating every possible avenue of debt relief for his clients before simply stepping into bankruptcy. Seeking to make each consumer that comes to him for legal aid as comfortable as possible, he keeps his clients in the loop with every step he takes.

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