Can Filing Bankruptcy Help With a Repossession?

How Filing Bankruptcy Can Help With a Car Repossession

If your car is in danger of being repossessed, filing bankruptcy will stop the repossession from happening… at least temporarily. This is because filing triggers something called the automatic stay, which is a legal protection that stops creditors from taking action against you, including repossessions.

If your car has already been repossessed, bankruptcy may help you get it back — but only if you file before your lender sells the car. Of course, bankruptcy isn’t a free pass to keep a car without paying for it, but it can give you the time and tools to address your car loan. 

Depending on the type of bankruptcy you file, it can help make your car payments more manageable or allow you to walk away from a car you can’t afford. Chapter 13 lets you include missed payments in a 3–5-year repayment plan, giving you time to catch up and keep your car. Chapter 7 allows you to surrender the car and eliminate any remaining loan debt after it’s sold.

If you want to keep your car, you’ll need to stay current on payments or work with the court to address missed ones. Bankruptcy provides breathing room to figure out your next steps, but it’s not a long-term fix unless you take action to resolve the loan.

Can You Get Your Car Back After a Vehicle Repossession?

Yes, you may be able to get your car back after a repossession, but only if you act quickly. When you take out a car loan, you agree that the lender can repossess the car if you miss payments. The car serves as collateral for the loan, meaning the lender has a legal right to take it back if you default.

After repossessing your car, the lender will usually sell it, often at an auction, to recover the money you owe. The timing of this sale depends on state laws. Some states require lenders to wait at least 10 days after repossession, giving you a short window to take action. In other states, the sale can happen sooner.

You typically have a few options for getting your car back, such as:

• Redeeming the vehicle by paying off the full loan balance (plus any fees)

• Reinstating the loan by bringing the loan current

• Negotiating a payment plan

However, these options are only available before the lender sells the car. Once the car is sold, it’s too late to reclaim it, so it’s important to act fast if you want to get your vehicle back.

Using Reinstatement or Redemption To Save Your Car After Repossession

If your car has been repossessed, you may be able to get it back if you can reinstate your loan or redeem the car. Your lender must send you a notice after the repossession that tells you:

• What your options are

• How and when you can redeem or reinstate

• The auction date, if there’s a public sale, or the redemption deadline for a private sale

How To Reinstate a Car Loan After Repossession

To reinstate your car loan after repossession, you’ll need to work directly with your lender. Reinstating the loan means bringing it current by paying everything you owe up to this point. This includes all missed payments, late fees, and interest, as well as repossession costs like towing, storage, and legal fees. Once you make this payment, your lender will return the car to you, and your loan will continue as if the repossession process never happened.

However, not all auto loans allow reinstatement. Whether you have this option depends on your loan contract and your state’s laws. Some states require lenders to offer reinstatement rights, but in others, it’s up to the terms of your loan agreement. Even if reinstatement is allowed, there may be limits. For example, in California, you can only reinstate a loan once every 12 months and no more than twice for the same loan.

If you’re not sure whether reinstatement is an option, check your loan agreement or contact your lender as soon as possible. Be prepared to act quickly, since the lender doesn’t have to wait before selling the car at auction if reinstatement isn’t exercised in time.

How To Redeem Your Car After a Repossession

To redeem your car after a repossession, you’ll need to pay off the entire remaining loan balance. This includes not just the past-due payments, but also the unpaid principal, interest, late fees, and any repossession costs like towing and storage fees. Once you make this payment, the lender will release the car back to you, and you’ll own it outright.

Most states give you the right to redeem your car after repossession, but the timeline for doing so varies. In some states, you must redeem your car by a specific deadline, while others allow you to redeem at any time before the lender sells the vehicle. It’s important to act quickly and check your state’s laws to avoid missing your chance to redeem.

Keep in mind that you can lose your right of redemption in certain situations. For example, some states revoke this right if you provided false information on your loan application or committed other types of fraud. If you're considering redemption, contact your lender or review your loan agreement to understand the process and requirements in your situation.

How Chapter 7 and Chapter 13 Bankruptcy Can Help You Keep Your Car

Filing bankruptcy can give you the breathing room you need to figure out a plan to save your car. For most people facing repossession, coming up with the lump sum needed for reinstatement or redemption just isn’t realistic. Bankruptcy, however, triggers the automatic stay. This immediately stops your lender from repossessing your car and from other collection activities.

If your car has already been repossessed, the automatic stay can also stop your lender from selling it at auction. But timing is everything — you must file bankruptcy before the car is sold, which can happen quickly in some states (as little as 10 days after repossession). Once the car is sold, a bankruptcy filing can’t help you get it back.

Filing bankruptcy doesn’t erase the financial obligation to pay for your car, but it gives you time to figure out how to move forward. If you file Chapter 7 bankruptcy, you may be able to negotiate with your lender to reaffirm the loan or even redeem the car by paying its current value, which might be less than the loan balance. If you file Chapter 13 bankruptcy, you can include past-due car loan payments in a repayment plan spread out over 3–5 years, making it easier to catch up.

Bankruptcy can provide relief and options, but it’s not a free pass. If you want to keep your car, you’ll still need a plan to pay for it.

How Chapter 13 Bankruptcy Can Help You Keep Your Car

Chapter 13 bankruptcy can help you keep your car by giving you the opportunity to catch up on missed payments and restructure your loan in a way that’s more affordable. The result of a Chapter 13 case is a repayment plan that lasts 3–5 years. Through this plan, you’ll pay either the full remaining loan balance or the car’s current value — whichever is lower — often at a reduced interest rate. These payments are spread out over the plan’s term, making them more manageable.

One of the key benefits of Chapter 13 case is that it allows you to include missed car payments in your repayment plan. This can stop the threat of repossession and give you time to catch up. However, it’s important to note that Chapter 13 doesn’t just affect your car loan. It covers all your debts.

For the bankruptcy court to approve your plan, you’ll need to show that you can afford the monthly payments based on your income and expenses. Because Chapter 13 cases can be complex, many people choose to work with an experienced bankruptcy attorney to make sure their plan is realistic and properly filed.

How Chapter 7 Bankruptcy Can Help You Keep Your Car

Chapter 7 bankruptcy doesn’t require a repayment plan, so you usually have to be current on your vehicle loan if you want to keep your car in a Chapter 7 case. That said, there are still some benefits to filing Chapter 7 if you face a car repossession.

You may be able to negotiate with the lender to reaffirm or modify your car loan and keep your car. Or, if that’s not possible and your car is repossessed, Chapter 7 can wipe out any remaining deficiency balance.

Reaffirming a Loan in Chapter 7

In some situations, you may be able to work with your lender to modify or refinance your car loan. Not every lender will be willing to negotiate, though, and bankruptcy law doesn’t require creditors to negotiate in Chapter 7 cases. If you can work out a deal with your lender, they’ll likely require you to sign a reaffirmation agreement containing new or modified loan terms.

In a reaffirmation agreement, you agree to abide by the original contract terms, subject to any changes you and the lender negotiated. Since you sign the reaffirmation agreement after the date you filed bankruptcy, the bankruptcy doesn’t apply to the new contract. In other words, if you don’t make the payments under the reaffirmation agreement, the lender can repossess your car, and you’ll be responsible for paying any deficiency balance.

Avoiding a Deficiency Balance

Usually after a lender repossesses a car, they sell it at a public auto auction where it may only fetch around half of its market value. After the auction, your lender uses the sale proceeds to first pay off any auction costs and repossession-related expenses. Then, they apply the remaining sale money to your loan balance, which includes principal, interest, late fees, and other charges.

If there isn’t enough money to cover the full amount, you’ll owe the difference. This remaining debt is called a deficiency balance. Your lender can attempt to collect it from you just like any other debt. If you don’t pay, the lender can sue you.

A deficiency balance is an unsecured debt. Because the lender already repossessed the car, there’s no longer any collateral securing the loan. Chapter 7 bankruptcy eliminates most of these debts, including deficiency balances. When it comes to repossession, the primary benefit of Chapter 7 is that you can use the bankruptcy discharge to wipe out a deficiency balance, so you’re not stuck paying for a car you don’t have.

Let's Summarize...

Even if your car has been repossessed, you may be able to get it back. If you can make a lump-sum payment, you may be able to redeem your car or reinstate your loan. Otherwise, you can file bankruptcy to get your car back. A Chapter 13 bankruptcy lets you pay for your car through a more affordable repayment plan. In a Chapter 7 bankruptcy, you can try to negotiate new loan terms with your creditor. If this doesn’t work out, Chapter 7 will still help you avoid getting stuck with a deficiency balance. 

Whichever option you choose, you must act quickly. Depending on your state’s laws, your lender can sell your car within days after the repossession. Once the car is sold, you aren’t likely to get it back.