What happens if the bank takes my car after I file for Chapter 13 bankruptcy?

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Question:

I filed a Chapter 13 bankruptcy. My plan is not yet confirmed, but I listed my car loan lender as a creditor, and I am making my monthly car payment. I do owe back car payments though. My car loan lender just repossessed my car. Is this legal?

Answer:

Your car lender has most likely violated bankruptcy's automatic stay. The stay prevents most creditors from continuing with collection efforts (including car repossession) when you file for Chapter 7 or Chapter 13 bankruptcy. It goes into effect the minute you file for bankruptcy.

I say "most likely" because in some circumstances, the stay does not go into effect right away, or only lasts 30 days. This happens if you have filed for bankruptcy within the previous year. 

Before the court confirms your Chapter 13 plan, your car loan lender cannot repossess your car. However, usually you must make "adequate protection payments" until your plan is confirmed. These typically equal your monthly car payment. If you don't make these payments, the lender can ask the court to remove the stay. 

For details on the automatic stay, exceptions to the stay for repeat bankruptcy filings, and what happens to car repossessions during the automatic stay, see the articles in Bankruptcy's Automatic Stay.

Once your plan is confirmed, it will outline what you plan to do with your car and car payments. If you want to keep the car, you can catch up on arrears through the plan. If you make all payments according to your confirmed plan, the car loan lender cannot repossess your car. (To learn more, see Your Car in Chapter 13 Bankruptcy.)

If you car loan lender tries to repossess, or does repossess, your car in violation of the automatic stay, contact a bankruptcy attorney immediately. (You can find a bankruptcy attorney in your area through Nolo's Lawyer Directory.)

by: , J.D.

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