I’m paying off my car loan through my Chapter 13 bankruptcy plan. Can the bank repossess my car if I don’t make my plan payments?
If you are paying off your car loan through your Chapter 13 bankruptcy, your car lender can ask the court for permission to repossess your vehicle if you don’t make your monthly plan payments. In addition, even if your lender doesn’t petition the court, your bankruptcy trustee will typically ask the court to dismiss your case if you fail to make your plan payments. (Learn more about the Chapter 13 repayment plan.)
Paying Off Your Car Loan in Chapter 13 Bankruptcy
Depending on your individual circumstances, paying off your car loan through your Chapter 13 repayment plan may allow you to:
- catch up on your missed car payments and stop repossession
- lower your monthly obligations by extending your car payments over the life of your plan, or
- reduce your loan balance or interest rate through a car loan cramdown.
But if you want to pay off your car through your Chapter 13 bankruptcy, you must make your plan payments.
You Must Make Timely Plan Payments
When you include your car loan in your Chapter 13 repayment plan, the trustee will send a portion of your plan payment to your car lender each month. But if you don’t make your plan payments, at least one of two things will usually happen:
- your car lender will ask the court to lift the bankruptcy’s automatic stay so that it can repossess your car, or
- the trustee will file a motion to dismiss your bankruptcy case.
Your Car Lender Can Ask the Court to Lift the Automatic Stay
If you don’t make your plan payments, your car lender will not get paid. But because the automatic stay prohibits your car lender (and other creditors) from taking any collection actions during your bankruptcy case, your lender cannot repossess your car without first obtaining permission from the court.
This means that if your lender is not getting paid through your Chapter 13 plan, it will typically file a motion and ask the court to lift the automatic stay (this is commonly referred to as a motion for relief from the automatic stay). If the court grants the motion, the lender is no longer restricted by the automatic stay. But it must still follow all of the proper state law procedures to repossess your car. (Learn more about what happens when a creditor tries to lift the automatic stay.)
The Court Can Also Dismiss Your Bankruptcy
If you want to remain in Chapter 13 bankruptcy and take advantage of the automatic stay, you must make timely payments to the trustee every month. If you fail to make your plan payments, the trustee will typically file a motion and request that the court dismiss your bankruptcy. (Here's what to do if you can't make your Chapter 13 plan payments.)
If the court grants the trustee’s motion and dismisses your case, you will no longer be protected under the bankruptcy’s automatic stay. If the court dismisses your bankruptcy for not making your plan payments, you will generally be behind on your car payments as well. This means that your lender will typically be allowed to repossess your car after your bankruptcy is dismissed.