Stop a Vehicle Repossession with Chapter 7 or13

Stop A Vehicle Repossession With Chapter 7 Or13One of the most powerful tools of bankruptcy—the “automatic stay”—can stop your car or truck from being repossessed by its creditor. The automatic stay is the law that automatically goes into effect the moment your bankruptcy case is filed to stay—or stop —all collection activity against you or your property. Filing a Chapter 7 or Chapter 13 case will force a creditor to immediately stop a repossession.

Under some circumstances even if you filed your bankruptcy shortly after a repossession, you may be able to get your vehicle back. The timing is extremely critical here, and you would have to meet certain conditions. The point is that the “automatic stay” is very powerful.

However, once the repossession is prevented, what then? The two different consumer bankruptcy options—Chapter 7 and Chapter 13—each help in different ways.

Keep or Surrender the Vehicle with Chapter 7

A Chapter 7 “straight bankruptcy” stops the repo, and then you quickly have to make a choice: do you want to keep the vehicle, and can you afford to, or will you instead surrender it?

If you want to keep the vehicle you will likely need to catch up on the late payments within a month or two after the bankruptcy filing. Most vehicle loan creditors will not give you more time than that, especially the big national ones. That’s in part because if you want to keep the vehicle you will be required to sign a “reaffirmation agreement” excluding this debt from the discharge of your debts. By law that agreement must be filed at court before the entry of the court order discharging all your debts. And that generally happens about three months after your case is filed. So your creditor will very likely want you to be current on your loan before that reaffirmation agreement is prepared and filed at court.

If you can’t pay the loan current that quickly but want or need to keep the vehicle, one possible solution is a Chapter 13 case, discussed below.

Otherwise, you will likely need to surrender the vehicle. Although losing your vehicle may not sound like a good idea, sometimes it’s the best way to go. And probably the best time for that to happen is during your bankruptcy case.

The advantages to surrendering the vehicle are

  1. getting out of the monthly payments (and insurance costs);
  2. avoiding having to come up with the money to pay the accrued late payments and related late fees and other possible charges; and
  3. discharging(writing off) any “deficiency balance,” the amount that you would continue to owe if you would surrender the vehicle without bankruptcy, after the creditor sold it and applied the proceeds to the balance owing.

Keep Your Vehicle through Chapter 13

You can also surrender your vehicle if you are filing a Chapter 13 case. But Chapter 13 gives you some of advantages over Chapter 7 if you want to keep your vehicle:

  1. You generally don’t have to catch up on the back payments.
  2. If your loan is more than two and a half years old, you can do a “cram down”—re-write the loan to decrease the balance down to the fair market value of the vehicle. You can often also decrease the interest rate and or stretch out the payments for a longer term, all of this usually resulting in a significantly reduced monthly payment.
  3. The “automatic stay” preventing repossession lasts not just three months or so but potentially three-to-five years long—the length of your Chapter 13 case. You do have to keep up your end of the bargain throughout this time. And the creditor can try to ask for permission to repossess at any time, especially if you are not paying according to the plan. But still the potential protection lasts so much longer than in Chapter 7.
  4. You would likely have the flexibility of changing your mind and surrendering your vehicle later, if your circumstances changed.

Chapter 13 does come with disadvantages. It is much more expensive and takes years instead of months. It may take longer to re-establish your credit record. Chapter 13 should not be entered into lightly.

Experienced bankruptcy lawyer Carrie Weir can help you stop a pending vehicle repossession by helping you decide whether Chapter 7 or Chapter 13 is your better option. Contact me if you are in the Dallas-Fort WorthMetroplex, and work or live in and aroundRockwall, Heath, Greenville, Lavon, Wylie, Mesquite, Royse City, Sachse, or Rowlett, Texas. I canmeet with you in a free and confidential consultation. If you want to contact me outside of business hours, please use this this contact form.

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