Can Chapter 7 bankruptcy prevent a car repossession?

| Oct 22, 2021 | Car Repossession

If circumstances have made you fall behind in your car payments, the lender may consider repossessing your vehicle. However, a Chapter 7 bankruptcy can temporarily delay your car repossession, allowing you more time to fix the situation. 

Once you file for Chapter 7 bankruptcy, it triggers an automatic stay which stops the lender from carrying on with their collection activities. However, since a Chapter 7 bankruptcy only lasts a couple of months, your lender may pick back up with the repossession.

It is important to note that the lender may apply to repossess your car sooner by filing a motion to lift the automatic stay. Unless you show that you paid up or are trying to do so, most bankruptcy trustees will grant the lender’s request to repossess your car.

Your options to stop your car from being repossessed

Chapter 7 bankruptcy is only a temporary solution. To prevent your car from being repossessed, here are your options.

  • Negotiate new loan terms with your lender. In the temporary stay granted by Chapter 7 bankruptcy, you may try to renegotiate the terms of your loan. 
  • Curing the default will prevent the lender from repossessing your car. Curing it means making your loan current, which is generally the lender’s preferred option, so they can continue receiving what’s due along with interest.
  • You can also redeem your car by paying the lender the current replacement value of the vehicle in a lump sum. It may not sound feasible given that you had filed for bankruptcy, but it is a way out.

It is essential to know how to navigate bankruptcy laws if things are not doing well with your finances. You may even protect some of your assets from creditors as you try to get things back on track if you know the right way to go about it.