The Extraordinary Tools of Bankruptcy: Getting Back Your Just-Repossessed Vehicle

Wasson and ThornhillVehicle Loans

Whether you can get your vehicle back depends on how long ago it was repossessed and whether you file under Chapter 7 or Chapter 13.

 

Under virtually all vehicle loan contracts, as soon as you are late on a payment your lender has the option of repossessing your vehicle without any warning. How fast that will actually happen depends on your payment history and the repossession practices of the lender.

If the Repossession Has Not Yet Happened

Filing bankruptcy will prevent an imminent repossession. The moment your case is filed the “automatic stay” goes into effect, stopping virtually all collection efforts against you and your property, including vehicle repossessions.

So if you are behind on your vehicle loan payments, have let your auto insurance lapse, or are in default on your vehicle loan contract in any other way—or are about to be—filing bankruptcy will stop the resulting repossession.

A Chapter 7 “straight bankruptcy” will stop a threatened repossession and give you a little bit of time—usually no more than a couple months—to bring your loan current. Any lapsed insurance also has to be reinstated, very quickly.

A Chapter 13 “adjustment of debts” will give you more time to catch up on the late payments—much longer than under Chapter 7—as much as a few years. Under some circumstances you may not need to catch up at all, and maybe pay less for the vehicle than required under the contract. However, lapsed insurance still needs to be reinstated quickly.

But What If My Vehicle Just Got Repo’d?

Whether you can get it back is, first, a matter of timing.

The “automatic stay” usually stops the lender, at least temporarily, from taking the next step after the repossession—to sell the vehicle (at an auto auction, generally) and pay the proceeds towards what you owe on the vehicle loan. Once your lender sells the vehicle to someone else, you can almost never get it back.

Second, getting it back depends on whether you file under Chapter 7 or Chapter 13.

A Chapter 7 case will work only if you are somehow able to immediately pay the repossession costs (usually a few hundred dollars) AND bring the account current (as well as reinstate any lapsed insurance). Even then, if your lender does not want to cooperate, whether it can be required to depends on how your local bankruptcy court interprets the law.

Filing Chapter 13 is much more likely to be effective. That’s because it provides a mechanism for you to catch up on the back payments over time, through monthly payments in your Chapter 13 plan. As long as you can pay the repossession costs up front, and your plan shows how you will catch up on the back payments—and you have the required insurance—most lenders will voluntarily return your vehicle. If not the bankruptcy court could likely be persuaded to order the lender to do so.

As mentioned above, in certain circumstances—essentially with vehicle loans older than two and a half years—under Chapter 13 you may not need to catch up at all, and can effectively re-write the loan at a lower monthly payment, often a lower interest rate, and generally a lower total amount to be paid.

That’s quite good: you get your vehicle back and, under Chapter 13, you may save substantial money—both monthly and in the long run—before you own it free and clear.