Can bankruptcy help me get my car back after a repossession?

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Written by Karra Kingston, Esq.  
Updated October 16, 2019

Summary

Filing bankruptcy may allow you to get a car back after it has been repossessed. This article explores how this might work in Chapter 7 vs. Chapter 13 bankruptcy and why it may not always be a good idea to try.

If your car has been repossessed, you’re probably stressed out and worried. If you have fallen behind on your payments and are wondering if bankruptcy can help get your vehicle back, the simple answer is yes, though it doesn’t always make sense to do so. If your car has been repossessed, bankruptcy can help you get it back as long as you quickly take action to recover your vehicle. It’s important to understand that if you wait too long, the creditor can sell the car at an auction to pay off a portion of the loan. This auction can happen relatively quickly after the car has been taken (how quickly it depends on your state’s laws) so acting fast is extremely important. If your vehicle has already been sold at auction, there is nothing filing bankruptcy can do to help.

Chapter 7 bankruptcy

In a Chapter 7 bankruptcy, the only way you may be able to get your car back is to work out a deal with the lender, which usually involves bringing the loan current. Often times, this means not only making all the missed payments, but also paying all fees, interest, late charges and expenses the lender paid to have the car repossessed in the first place. In short, filing a Chapter 7 bankruptcy after your car has already been repossessed won’t help you get your car back without paying a lot of money for it. If you’re thinking about taking all of your savings or borrowing the money from a family member or friend to get your vehicle back, then you may want to carefully reconsider that decision. A Chapter 7 bankruptcy can wipe out your obligation to pay the loan wipe out the loan on the vehicle if you no longer want to keep the car or can’t keep up on the payments. So, even if the car only fetches half of what is owed on the loan at auction, your bankruptcy discharge protects you. The same is not true if you spend time, money, and effort getting the car back.  If you are able to come up with the money to bring the vehicle loan current after filing a Chapter 7 bankruptcy, you will have to sign a reaffirmation agreement for it. This contract is a new agreement between you and the lender stating that you will continue to be responsible for all future payments on the car, no matter what.

So, don’t run too fast to sign this agreement if you don’t think you will be able to keep up with the payments. Keep in mind, you’ve already fallen behind on payments once. If you fall behind on your payments again, the lender can not only repossess the car, they can also come after you for the balance owed after the auction. The bankruptcy discharge will not apply to the reaffirmed debt. 

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Chapter 13 bankruptcy

Unlike a Chapter 7 bankruptcy, a Chapter 13 bankruptcy can help you get a repossessed vehicle back by making payments towards the car. However, as mentioned above, you must act quickly. In a Chapter 13 bankruptcy, you can get your car back after it has been repossessed, as long as you show the Court you can afford to make payments in a Chapter 13 plan. You will need to demonstrate to the Court that you can afford to pay enough into your plan to pay off the car loan and meet all of your other obligations. When you file for bankruptcy, the creditor will be notified of your filing. Many creditors voluntarily choose to give back the car once a Chapter 13 bankruptcy has been filed. If your lender doesn’t want to give back the car, you will need to file a request with 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. 

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Conclusion

If your vehicle has been repossessed, make sure you think carefully about whether you can afford the car before you take any further steps. If you plan to use your last bit of savings to try and save a vehicle that you can’t really afford, then you may end up in the same place you were in before you filed for bankruptcy - but without funds that you otherwise can use to make the most of your fresh start. If you can’t afford the payments, then letting go may be the best decision. If you know you can afford the payments and want to get your car back, through a Chapter 13 or otherwise, speaking with a bankruptcy attorney about your options may be a good idea. If you have digested the initial shock of having your car repossessed and you know 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. 

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