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How to use bankruptcy to stop repossession and save your vehicle

Filing a Bankruptcy Case Will Stop a Vehicle Repossession.

Potential vehicle repossession is a leading concern for filing a bankruptcy case. Why? Because of the protection you receive as soon as a bankruptcy case is filed. As soon as a bankruptcy case is filed, a stay or an automatic protection goes into place halting all creditor action immediately. As an example, if your vehicle were up for repossession tomorrow, and you filed a bankruptcy case today, that repossession could not legally take places. If it did, the creditor would have to give the vehicle back, and the creditor could face sanctions from the bankruptcy court for violating the automatic stay (the court order which gives you the protection from creditors).



Chapter 7 and Vehicle Repossession.

In a chapter 7 the debtor is seeking an immediate discharge from unsecured creditors. While a vehicle loan is a secured loan, the discharge would not apply to the vehicle whilst it is still in the debtor's possession. If the debtor wants to surrender the vehicle, the discharge will apply to any amount due on the loan as soon as the vehicle is surrendered. If the debtor is behind on the vehicle and wants to keep the vehicle, a chapter 7 will not bring the vehicle current, so a chapter 7 may not be the best option in that circumstance. However, there may be a redemption option available if the debtor wants to keep the vehicle. While these options are on the table, they are not good for every situation, and redemption agreements are usually very interest rates.

Chapter 13 and Vehicle Repossession.

Just like in chapter 7, once a chapter 13 bankruptcy is filed, the debtor is protected. Chapter 13 is a 36 to 60 month payment plan where a debtor pays their "disposable" income to a bankruptcy trustee, who in turn pays creditors according to statutory ranking. In a chapter 13 case, secured creditors are paid before unsecured creditors. Chapter 13 bankruptcy is a great option for a debtor who wants to pay their vehicle off, and/or pay back any arrears for a vehicle. Chapter 13 is perhaps the best option for those wishing to save a vehicle they've fallen behind on.

It is because the chapter 13 trustee can pay back arrears and pay a vehicle off in full, chapter 13 is a great option for those with significant vehicle debt or arrears. Chapter 13 is also a useful tool to pay off vehicles with high interest rates, because in a chapter 13 plan, a vehicle's interest rate can be crammed down significantly (usually to 4%). Depending on the circumstances, chapter 13 will also allow a debtor to cram down the principal owed on a vehicle, if the vehicle has been owned by the debtor for at least a specified period of time. If the debtor is able to cram down the principal, they will pay back the vehicle's fair market value, rather than the amount owed to the creditor. This can be a huge benefit to any debtor, because as anyone who has ever had a car payment knows, most vehicles are "underwater" as soon as they are driven off the dealer's lot.

If you are behind on your vehicle, facing repossession or you have a ridiculous interest rate, talk to an experienced bankruptcy attorney now, because you have options. Again, filing a bankruptcy case will protect your vehicle. These rules could be different if you have multiple bankruptcy filings within a short period of time. Talk to an experienced bankruptcy lawyer so you know what you can and cannot do. Call an experienced bankruptcy lawyer in Mesa or Tempe at 480-355-1377