If your car was repossessed, filing bankruptcy may help you get it back, but you need to act fast. If the lender has already sold your vehicle at auction, you won't be able to get it back. Even if you can use bankruptcy to help you get your car back, you'll want to carefully weigh your options. If you can't afford to keep making your monthly car payment, it may not make sense to file bankruptcy just to get your car back because you can end up in the same situation again.
Written by the Upsolve Team.
Updated July 25, 2023
Car repossession naturally causes a lot of stress and worry. Falling behind on your car payments might have you wondering if you could use bankruptcy as a debt relief tool to get your vehicle back. Although the simple answer is “yes,” it doesn’t make sense in every situation. Only those who can make their regular car payments going forward should consider this option. Bankruptcy can help youget your repossessed car back, but you must act quickly.
Act Fast if You Want To Get Your Vehicle Back
You only have a limited amount of time to get your vehicle back. The clock begins ticking the moment it’s repossessed. If you wait too long to act, your lender can sell it at auction and put the proceeds toward your loan balance. Your car could be sold relatively quickly — in as few as 10 days — so you need to move fast if you want it back. The exact timeline will depend on your state’s laws.
What if the Car Has Already Been Sold at Auction?
Unfortunately, if the lender already sold your car at auction, it’s too late to get it back even by filing bankruptcy.
To make matters worse, if your car sold for less than what you owe on the loan (plus the repossession costs), you may owe a deficiency balance. This is the portion of your vehicle loan that isn’t paid off by the funds your car fetches at auction. For example, suppose you owe $5,000 on the loan, but the car only sells for $3,000. In this case, you’d still owe $2,000 on the loan even though you won’t get your car back.
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Vehicle Repossession & Chapter 7 Bankruptcy
If you’re consideringChapter 7 bankruptcy, your best option to get your car back may be to talk to your lender. They may be willing to work out a deal to give you the car back if you make a plan to make up the missed payments. You’ll also have to pay all the fees, interest, late charges, and any other expenses the lender paid to repossess the vehicle. You might find that this means you end up having to pay a substantial amount of money for it.
It might be tempting to pay this large sum with your savings or borrow money from a family member or friend to pay it. But think carefully about this decision. If you file Chapter 7 after your car has been repossessed and sold, you can have the deficiency balance discharged with your other unsecured debt. Then, you can buy a more affordable car as you move forward with your fresh start.
If you file before the car has been repossessed, you can consider voluntary repossession.
If you come up with the money to bring your loan current and file for Chapter 7 bankruptcy, the lender may ask you to sign a reaffirmation agreement. With this agreement, you’re contractually obligated to continue making monthly payments after the bankruptcy discharge. The car loan debt won’t be discharged as part of the bankruptcy, and your car can be repossessed if you fall behind on your payments after bankruptcy. You’ll also be liable to pay a deficiency balance if the car is repossessed and sold for less than what you owe.
Vehicle Repossession & Chapter 13 Bankruptcy
A Chapter 13 bankruptcy allows you to get your car back and make up the past-due payments over time through a repayment plan. This is easier for many people than making a lump-sum payment. Still, you must act quickly. In a Chapter 13 bankruptcy, you can get your car back after it has been repossessed, but you must show the court you can afford to make payments in a Chapter 13 plan. You have to be able to prove that you can make your regular monthly car loan payment in addition to your Chapter 13 payment plan amount, and meet all of your other financial obligations. If you can’t prove this, the court may not allow you to keep your vehicle.
Once you file for bankruptcy, your lender will receive a notice. Then, you’ll likely need to file a request to get your car back through the bankruptcy court. Even though you may want to keep your vehicle, filing a Chapter 13 to keep a car you really can’t afford may not be the best decision. Take an honest look at your entire financial situation to determine if it makes sense for you to do so.
If Your Car Is Still in Your Possession
If you’re behind on your payments and file for bankruptcy, the automatic stay can prevent a lender from repossessing your car. It also stops other collection activities. However, lenders and creditors can file a motion to lift the stay, which would allow the lender to move forward with the repossession if the bankruptcy court granted it. In most cases, the lender will be allowed to proceed with the repossession unless you plan to pay for it in your bankruptcy and keep making payments.
If your vehicle was repossessed, bankruptcy may be able to help you get it back. However, you should carefully consider whether you can afford to keep paying your loan. If it doesn’t make sense for you to get it back, filing a simple Chapter 7 bankruptcy with or without Upsolve’s help will protect you from having to pay the rest of the loan. On the other hand, if you’re confident you can afford your vehicle payments and want your car back, it’s a good idea to speak with abankruptcy attorney about your options.