If you need a car in order to get to work or take care of family errands, or if you make your living by driving your own truck or another commercial vehicle, avoiding repossession or liquidation of your vehicle is probably a very high priority.
If you’re worried that you’re at risk of your car being repossessed, you likely can’t afford the payments, adding an extra layer of stress. Chapter 7 and Chapter 13 provide options for avoiding vehicle repossession and liquidation. It’s invaluable to hire a trusted bankruptcy attorney to help you navigate the process more smoothly and provide the best options for you.
Can I Keep My Car If I File Bankruptcy?
Filing for Chapter 7 bankruptcy after vehicle repossession allows you more time to get it back. Typically when your vehicle is repossessed, the lender will auction it within two weeks and use the money to pay down the car loan. If the car has already been sold, Chapter 7 won’t help you repossess your car or truck or prevent you from vehicle liquidation. However, if you file before the sale, you’ll have a greater chance of getting it back.
When you file for Chapter 13 bankruptcy, an automatic stay order is placed. This prevents creditors from pursuing debts that you owe. If a lender hasn’t repossessed your vehicle at the time you file for bankruptcy, the automatic stay will prevent vehicle repossession until your Chapter 13 repayment plan is approved.
If your repayment plan includes any missed car loan payments, you’re protected from vehicle repossession throughout your bankruptcy case and after it concludes. However, you’re required to make adequate protection payments—typically equal to your car loan payments—after you file until your plan is approved. These payments will cover the value of your vehicle during this period.
There are some scenarios when the automatic stay order won’t protect you from vehicle repossession. The stay will lift after 30 days if you refile for Chapter 13 after the court dismissed a previously filed Chapter 13 case or on the date of if you reject a personal property lease for a car or other equipment.
A lender can also request to lift or remove the automatic stay to continue collecting during your bankruptcy case if you’ve fallen behind on your car payments. If your vehicle is repossessed before you file for Chapter 13, you can get it back by providing the arrears and proving that you can continue making monthly car payments.
Options for Recovering Your Vehicle After Filing Chapter 7
While the automatic stay is in effect, you can negotiate with your lender once they know that bankruptcy discharge will eliminate your liability on the loan. During this period, a lender might be willing to lower your payment amount, bankruptcy car loan, or interest rate. Once you and your lender agree on new terms, you’ll need to reaffirm your liability.
When you file for Chapter 7, you can buy back your car at fair market value instead of paying the loan balance. This is a good option if your loan balance is more than what the vehicle is worth. You’ll be able to redeem the car when you file a motion with the court and pay the full amount upfront in a lump sum.
Oftentimes, even after you repossess the vehicle, you still owe money on it. In this case, the lender can collect the rest—called a deficiency balance. In Chapter 7, the remaining bankruptcy car loan or deficiency balance will be completely discharged.
Reducing Car Loan Payments in Bankruptcy
The automatic stay provisions of bankruptcy law can immediately stop any pending repossession after you file. In some cases, the automatic stay can also be used to recover a car or truck that has been repossessed but not yet sold at auction.
While auto loans are secured loans that can’t be completely discharged in bankruptcy, several techniques can be used in Chapter 7 and Chapter 13 bankruptcy to reduce the amount you owe so you can keep your car or truck. These include:
- Reducing your interest rates
- Reducing your amortization schedule
- Redeemed the secured portion of your loan
- Repaying your arrears on a Chapter 13 Repayment Plan
If you owe more than the value of your vehicle, you can alter loan payments under Chapter 13. This is called “cramdown.” If certain conditions are approved, you can reduce your loan to the value of your vehicle. Additionally, you can lower the high-interest rate. Any remaining balance will get treated as unsecured debt and only paid if you have room in your budget.
There are some exceptions to cramdown. It doesn’t apply to new car loans or a Chapter 13 bankruptcy case that has been dismissed. If you used a loan to purchase a vehicle within 910 days of filing, you’re not eligible for cramdown. If your Chapter 13 case is dismissed, your car loan will revert to its original terms, and creditors can collect what you owe at the higher interest rate.
We’ve helped many clients keep their cars and trucks by reducing their monthly payments and the amount they have to pay interest. In some cases, these techniques and strategies can also be used to modify the terms of leases.
Middle Tennessee’s Top Bankruptcy Attorneys
At Flexer Law, our bankruptcy lawyers work with the protections offered by bankruptcy law to help our clients keep their vehicles. If you’re not facing vehicle repossession but considering filing for bankruptcy because of other debts that you owe, it’s essential to consider whether you’ll be able to keep your car.
Under Tennessee law, a limited amount of equity in a vehicle is exempt from liquidation in Chapter 7. Since many vehicles are worth less than what you owe, equity and exemption planning might not be an issue. Our bankruptcy attorneys are skilled at maximizing the equity you can exempt to make the vehicle burdensome to the Chapter 7 trustee.
Flexer Law has been serving the legal needs of Middle Tennessee residents since 1981. Our experienced bankruptcy attorneys will work diligently on your behalf to provide the best financial outcome for you. We have three office locations throughout Middle Tennessee to accommodate your legal needs. Contact us for a free consultation, and we’ll find the best solution to get your financial life back on track.