Bankruptcy Basics You Should Know About Car Repossession Laws

If you are facing bankruptcy and are delinquent on a car loan, there are some things you should know about car repossession laws and bankruptcy.

Car Repossession Laws and Bankruptcy

The car repossession laws for bankruptcy will vary depending on the value of the car and the type of bankruptcy.

With chapter 7 bankruptcy, non-exempt assets are seized during the bankruptcy process. These assets are sold and the proceeds distributed to your creditors by the bankruptcy trustee. Any unsecured debts are then forgiven, and your slate is wiped clean
With Chapter 13 bankruptcy, your assets aren't taken. Instead, you create a payment plan for your debts and pay some or all of the money back over a period of 3-5 years. The repayment plan is overseen by a bankruptcy trustee.

What Happens To Your Car

Bankruptcy does not stop car repossession, nor can you declare bankruptcy to wipe out your car loan and keep your car. However, when you declare bankruptcy, all debt collection activity must stop until the bankruptcy case is heard. This means that as soon as you declare bankruptcy, your lender cannot repossess your car and cannot begin collecting on the debt. This is true regardless of whether you declare Chapter 7 or Chapter 13.

However, after the bankruptcy proceedings, you will either lose the car or you will have to pay the debt and become current on your loan. This is the case because car loans are a secured loan- if you don't pay, you don't keep the vehicle. In addition, if you declare Chapter 7 and you have a lot of equity in the car and it is an expensive or luxury vehicle, then it could be an asset that is seized. For example, if you own a $50,000 car and owe $10,000 on it, then the car may be seized and sold and the $10,000 loan paid off and then the difference used to pay your other debts.

If the car is inexpensive, or if you declare Chapter 13 bankruptcy, then you can keep it... but only if you pay what you owe and stay current.

Getting Help

If you have questions about bankruptcy, or car repossession laws that apply to those who are in the process of declaring bankruptcy, you should speak with an experienced bankruptcy attorney. Your attorney can explain to you the difference between exempt and non-exempt assets and can help you to determine what your best course of action is regarding saving your vehicle.

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