For many families, a vehicle is more than just transportation—it is essential to everyday life. You rely on your car to get to work, take your children to school and activities, buy groceries, attend appointments, and manage the responsibilities of daily life.
That is why the possibility of losing a vehicle to repossession can be overwhelming. A repossession may feel like a financial failure or an embarrassment, but it can also have serious practical consequences, including making it difficult to get to work or maintain other important commitments.
If you are behind on your car payments, you may be wondering: Is there a way to stop a repossession and keep my vehicle?
Depending on your circumstances, bankruptcy may provide an option.
Understanding Repossession
When you finance a vehicle, the lender generally has a security interest in the car. If you default on your loan, the lender may have the right to repossess the vehicle.
In many circumstances, a lender does not have to provide advance notice before taking a vehicle. That means repossession can happen quickly once a loan is in default.
If you are already behind on your payments—or have been notified that your vehicle is at risk of repossession—understand your options before the situation becomes more urgent.
Can Bankruptcy Stop a Repossession?
In some situations, filing for bankruptcy can help stop or delay a vehicle repossession.
When you file for bankruptcy, an automatic stay generally goes into effect. The automatic stay can stop many collection actions, including repossessions, wage garnishments, certain lawsuits, and collection efforts.
However, the automatic stay does not necessarily mean you can keep your vehicle. A lender may ask the bankruptcy court for permission to continue with the repossession by filing a Motion for Relief from the Automatic Stay.
Your options will depend on factors such as the type of bankruptcy you file, the amount you owe, the value of your vehicle, and your ability to make payments going forward.
Chapter 7 Bankruptcy and Your Vehicle
Chapter 7 may be an option for individuals who qualify and are struggling with overwhelming debt.
Depending on your circumstances, you may be able to redeem your vehicle. Vehicle redemption generally involves paying the lender a lump sum based on the vehicle’s current value rather than the full amount remaining on the loan.
If you owe significantly more on a vehicle than it is currently worth, redemption may sometimes let you keep the vehicle for less than the outstanding loan balance.
However, Chapter 7 is not the best solution for everyone. In some situations, surrendering a vehicle and addressing the remaining debt through bankruptcy may make more financial sense.
Chapter 13 May Provide Another Option
Chapter 13 bankruptcy can provide another potential path for someone who wants to keep their vehicle while addressing their financial difficulties.
The automatic stay can generally stop collection actions, including a repossession. In Chapter 13, you may incorporate certain past-due amounts into a court-approved repayment plan.
A Chapter 13 plan typically lasts three to five years, allowing eligible individuals to pay certain debts over time rather than paying everything at once.
Chapter 13 can be particularly useful when a person has other debts that also need to be addressed as part of a broader financial plan.
Every Situation Is Different
No single bankruptcy solution works for everyone. The best option depends on your individual circumstances, including your income, debts, vehicle loan, the value of your vehicle, and whether you can afford the payments going forward.
If your vehicle is at risk of repossession, don’t wait until the tow truck arrives to find out what your options are.
Speaking with an experienced bankruptcy attorney can help you understand your rights, determine whether bankruptcy may be appropriate, and develop a plan based on your specific financial situation.
If keeping your vehicle is important to your ability to work and care for your family, you may have options. The first step is understanding what those options are.
Want to learn more about Chapter 13?
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