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Dealing with an Expected Vehicle Repossession

Tow truck chain hooked to carBankruptcy stops your vehicle from being repossessed, and then gives you many tools—under both Chapter 7 and Chapter 13–to either keep or surrender the vehicle.

Stopping the Repossession

The minute you file any kind of bankruptcy case, the “automatic stay” instantaneously stops vehicle repossession. The automatic stay is an injunction against repossession and any other collection efforts by creditors. This federal injunction goes into effect immediately upon the filing, without the delay of getting a court order and without the vehicle lender having any say about its imposition.

Even though the injunction is effective immediately, the vehicle lender—as well as perhaps its attorney, and in some cases even its repossession agent—should be informed right away about your bankruptcy filing so that they are aware of it and do not repossess your vehicle out of lack of knowledge of the filing.

Not Violating the “Automatic Stay”

If your vehicle IS still repossessed after and in spite of your bankruptcy filing because the lender had genuinely not yet heard about your filing, it must return your vehicle to you immediately. Otherwise it risks significant penalties for violating the automatic stay.

If the lender repossesses in spite of KNOWING about your bankruptcy filing, it will likely be penalized by the bankruptcy court for violating the law.

An exception is if beforehand it filed a motion with the bankruptcy court and received permission to repossess.

Keeping Your Vehicle after Stopping Repossession

If you want to keep your vehicle, determining whether Chapter 7 and Chapter 13 is the better tool turns on two questions:

  1. Are you current on your payments or can you get current within about 30-60 days after filing bankruptcy?
  2. Did you buy and finance your vehicle more than 910 days (about 2 and half years) ago and is it worth less than what you owe on it?

Chapter 7 for Keeping Your Vehicle

If you are current on your vehicle or can get current quickly, you can usually just catch up and continue making your regular payments and keep the vehicle in a Chapter 7 “straight bankruptcy.”

If you are further behind—so that you won’t be able to bring your account current within a month or two after filing—most likely you will not be able to keep your vehicle through Chapter 7. Talk with your attorney because certain creditors, usually unconventional and/or local ones, may be more flexible, such as allowing missed payments to be put to the end of the contract.

Chapter 13 for Keeping Your Vehicle

If you are not able to catch up on your late vehicle payments within about two months, Chapter 13 “adjustment of debts” will give you much more time to do so, up to five years.

Even if you are current or close to current, but your vehicle is worth less than your debt on it, AND your loan is more than 910 days old, Chapter 13 gives you the often extremely helpful “cramdown” option.

This allows you to in effect re-write your contract to:

  1. pay the secured part of the debt—the portion of the balance equal to the value of the vehicle—usually at a reduced interest rate and often with radically reduced monthly payments, and
  2. only pay the remaining unsecured balance to the extent you have money to do so. This unsecured amount is lumped in with all the rest of your general unsecured debts—credit cards, medical bills, and such—and often paid very little or nothing at all during the course of your case—depending on your budget. Any remaining amount is completely discharged at the end of your case.

If you qualify for “cramdown,” you don’t have to catch up on the late payments. You just start paying the lower monthly “cramdown” payment going forward after your Chapter 13 case is filed.

Surrendering Your Vehicle

If you don’t need your vehicle, or simply can’t afford it even with the help that Chapter 7 and 13 would provide, surrendering it while you’re in a bankruptcy case is usually much better than surrendering it without a bankruptcy. That’s because usually after a surrender (or repossession) you almost always continue to owe a “deficiency balance.” That’s the debt remaining after the lender sells the vehicle (usually at an auto auction) and credits the proceeds to the account. A Chapter 7 case would virtually always discharge (legally write off) that deficiency balance. A Chapter 13 would do so as well, usually without increasing what you need to pay into your plan.


Let us show you how Chapter 7 and Chapter 13 can help you solve your financial problems, with your vehicle loan and with the rest of your debts. If you are in New Jersey, the Law Office of Andrew B. Finberg can help. The initial consultation is free. Please call us at (856) 208-4152. Or you can use this form to set up your no-obligation consultation with us. Thank you.

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