For most people filing for a Chapter 7 bankruptcy, one of their biggest worries is their vehicle. If a person loses a vehicle in a bankruptcy, they lose a way to get to work and will then have even more financial difficulties.
Chapter 7 and the Automatic Stay
If you are in Chapter 7 bankruptcy, your car lender cannot repossess your car or otherwise try to collect the debt without getting permission from the court. The reason is the automatic stay – when a Chapter 7 bankruptcy is filed, an automatic stay is created. An automatic stay makes it illegal for most creditors to attempt to collect debts.
However, your lender can ask the bankruptcy court to lift the automatic stay in order to repossess your car.
How Lenders Can Lift the Automatic Stay
In order to do this, the lender must file a “motion for relief from the automatic stay”. In the motion, the lender has to show that it’s a party to the bankruptcy as a creditor, that it has a right to repossess the car, and that its interests are not being properly protected because you are not making timely loan payments.
If your lender does file a motion for relief, you have about two weeks to oppose the motion. If you do oppose the motion, normally there will be a hearing at which the judge will decide whether or not your car can be repossessed. In most bankruptcies, the judge will grant the motion for relief and allow the debtor’s car to be repossessed by lifting the automatic stay, unless you are attempting to pay for the car or you are negotiating with your lender.
How to Avoid Repossession in a Chapter 7 Bankruptcy
If you are in a Chapter 7 bankruptcy, and you want to keep your car, you have several options to avoid repossession.
Negotiating With the Lender
Most lenders would rather have you keep the car and continue paying rather than repossessing the car. Tell your lender about your financial situation and ask what can be done to allow you to keep the car. You may be able to pay reduced payments or a lower interest rate.
Catch Up on Car Payments
If you are significantly behind, it could be hard to come up with the money. However, once you stop paying your other debts you may be able to catch up with what you owe on your car.
Redeem Your Car
You could also redeem (buy) your car in a Chapter 7 bankruptcy for its fair market value. Normally, in order to do this you must file a motion with the court and make a lump sum payment. You could consider doing this if your car is worth less than you owe on it. You will then own it outright after the bankruptcy.
Let Holston & Huntley, LLC Help You Avoid Repossession
If you are considering Chapter 7 bankruptcy, it’s normal to worry about what will happen to your vehicle. Call the attorneys at Holston & Huntley.