When you file for Chapter 7 bankruptcy, is your car safe from repossession? And what if your car is repossessed shortly before you file for Chapter 13? Can you get it back? Read on for the answers to these quetions.
(For more information on what happens to your car and car loan in Chapter 13 bankruptcy, see Your Car in Chapter 13).
The Automatic Stay and Car Repossessions
When you file for Chapter 13 bankruptcy, most creditors are instantly prohibited from continuing collection efforts against you. This is called the "automatic stay." The automatic stay also prevents your car loan lender from repossessing your car. (To learn more, see our Bankruptcy's Automatic Stay area.)
Here's how the automatic stay protects you in two different situations: When the lender has not repossessed your car before you file for bankruptcy, and when the lender has already repossessed your car when you file for bankruptcy.
No repossession when you file for bankruptcy. If the lender has not repossessed your car and you file for bankruptcy, the automatic stay prevents the lender from repossessing your car until the bankruptcy judge approves your repayment plan. Then, if your repayment plan deals with the back payments (the arrearage) on your car loan, the lender cannot repossess your car during and after the bankruptcy (assuming you stay current on your payments).
Although the lender cannot repossess the car even if you are behind on payments, you must make "adequate protection" payments from the time you file for bankruptcy until your plan is approved. These payments are designed to cover the depreciation of your car during this time period. Usually, adequate protection payments are equal to the amount of your car payment. So, once you file for bankruptcy, keep on making your car payments until your plan is confirmed.
Your car is repossessed before you file for bankruptcy. In some cases, if your car is repossessed shortly before you file for bankruptcy, you may be able to get the car back if payment of the arrearage is provided for in your repayment plan and you are able to continue making your monthly payments. If your car has been repossessed and you plan to file for Chapter 13 bankruptcy, contact an attorney immediately. (To learn more, see My lender repossessed my car right before bankruptcy. Can I get it back?)