The lender has repossessed, but not sold, my car. Can Chapter 13 help?

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Question:

I've been struggling with debt for a while now, and my lender has repossessed my car. I was looking into Chapter 13 bankruptcy to get my payments into a realistic plan. If I do file, can I get the car back from my lender?

Answer:

Even if your car was repossessed by your lender, you may still be able to get it back in Chapter 13 bankruptcy as long as it has not been sold to a third party.  Read on to learn more about how Chapter 13 bankruptcy can help you get your car back after repossession.

(For more articles on what happens to your car and car loan, including reducing your loan, paying back arrears, and avoiding repossession, see Your Car in Chapter 13.)

How Long Do You Have Before Your Car Is Sold?

After a lender repossesses your car, it will typically sell it to a third party and apply the proceeds towards the balance of your loan. How long a lender must wait before selling your car depends on state law but usually, the lender will sell your car within a couple of weeks. Most states require that lenders give you notice of the time and place of the sale. Since the lender can sell your car fairly soon after repossessing it, you must act quickly.

How Can Chapter 13 Bankruptcy Help You Get Your Car Back?

Filing for Chapter 13 can stop the lender from selling your car and force it to return the car to you. After you get the car back, you can pay the loan and any missed payments through your repayment plan. In fact, Chapter 13 may even allow you to reduce your loan balance or interest rate. Here’s how.

The Automatic Stay Stops the Sale of Your Car

When you file for Chapter 13 bankruptcy, the lender is prohibited by the automatic stay from selling your car without obtaining court permission. If you can show that you have a viable plan to pay the car off through your Chapter 13 case, the court will force the lender to return your car. However, if you miss your bankruptcy plan payments, the lender can ask the court to lift the stay and allow it to repossess the car again.

For more information on the automatic stay, see Bankruptcy's Automatic Stay.

You Can Pay Off the Car Through Your Repayment Plan

In Chapter 13 bankruptcy, you pay back a certain portion of your debts through a three to five year repayment plan. You are allowed (sometimes even required) to pay your car loan through your Chapter 13 plan. When you get your car back, you can pay off the balance of your loan (including all arrears) through your bankruptcy. This can also help you lower your monthly payments by stretching the car payments over a five year period. (To learn more, see Your Car in Chapter 13.)

You May Be Able to Reduce Your Loan Balance or Interest Rate

In addition to stopping the sale and giving you an opportunity to pay off your car loan through your plan, Chapter 13 bankruptcy may even allow you to reduce the balance or interest rate on your loan. This is referred to as a car loan cramdown.

In a cramdown, you can reduce the balance of your loan down to the fair market value of your car if you meet certain requirements. You may also be able to reduce your interest rate as well. As a result, this can lower your monthly payments significantly and help you to afford and keep your car.  

To learn more, see Can You Reduce Your Car Loan in Bankruptcy?

by: , Attorney

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