Suppose you file bankruptcy and several days later discover your car, van, SUV, motorcycle, or truck is missing. With a frantic call to the local police department you learn that your creditor has repossessed your car. Fortunately, most creditors will release the car right away after you notify them of your bankruptcy filing. (Learn more about how car repossession works.)
Why Would a Creditor Repo My Car After I File Bankruptcy?
Unless your car creditor had permission from the bankruptcy court, the repossession is in violation of the automatic stay. (The automatic stay prohibits creditors from continuing with collection actions once you file for bankruptcy.) If the creditor knew you were in bankruptcy and repossessed the vehicle anyway, the bankruptcy court could sanction the creditor.
Car creditors repossess cars in bankruptcy for two reasons:
- the creditor was not aware of the bankruptcy filing, or
- the creditor was aware of the bankruptcy but was ignorant of the restrictions imposed by the automatic stay.
How Creditors Get Notice of Your Filing
As soon as you file your bankruptcy petition, the information is available in a searchable electronic database. But it usually takes the court about a week to mail out an actual notice to your creditors. This lag time can create issues for you and your creditors. Although many national companies use the court’s electronic database to research the status of accounts before taking any collection action, smaller creditors often fail to take that extra step. As a result, creditors will at times order a repossession because they have not received notice of the bankruptcy.
Inform the Car Lender of Your Bankruptcy
If you are behind in your car payments at the time you file bankruptcy, inform your attorney. He or she can contact the car loan lender right after filing your case and head off any plans for repossession. In the meantime, to ensure that the vehicle is safe from the repo company, you can lock the car in a garage or park it away from your usual haunts.
What Should I Do if the Lender Repossesses My Vehicle?
If the lender repossesses your car, tell your attorney right away. Your attorney will contact the creditor and provide notice of your bankruptcy filing. If you don't have an attorney, you can do this yourself. At that point, the creditor should notify the repossession agent to release the car to you.
Unfortunately, some creditors will repossess the car with full knowledge of the pending bankruptcy case. When this happens, the lender is usually a small tote-the-note car lot without much experience handling customers in bankruptcy. If an uninformed lender refuses to return your car, you can ask the court for an order requiring that the lender return the car to you. Often, the court will impose sanctions against an uncooperative lender. Sanctions might include reimbursing you for any expenses you incurred, such as car rental costs, lost wages, or additional attorney's fees.