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Can bankruptcy keep my car from being repossessed?

On Behalf of | Jan 25, 2024 | Car Repossession

The average cost of a motor vehicle has increased significantly in recent years. More complicated systems in vehicles and used car shortages have combined to drive up what people pay for transportation. With higher vehicle costs come more financed transactions. Those in need of new vehicles often require loans to purchase even used vehicles. Individuals can typically qualify for vehicle financing despite having blemishes on their credit records in part because the vehicle they buy serves as collateral for the loan.

A car loan is a secured loan, which means that it is a bit easier to qualify for than unsecured credit. However, a secured loan also means the collateral property is at risk if someone defaults. An individual who has fallen behind on vehicle payments could face the repossession of the car, truck, van or SUV that helps them get to work and care for their family members. Can personal bankruptcy prevent vehicle repossession?

Collection activity stops when someone files for bankruptcy

The very same day that someone files for personal bankruptcy, the courts grant them special protection. The courts issue an automatic stay at the time of a bankruptcy filing that temporarily prevents any collection activity against the filer.

Lenders can sometimes petition the courts to lift the automatic stay. The courts do sometimes allow specific creditors to move forward with collection activity despite a bankruptcy filing, but such allowances take time to secure. In the meantime, businesses cannot call a debtor, send them payment notices or move forward with pending debt-related lawsuits after the person who owes money files for bankruptcy. Even actions against collateral property, like the vehicle purchased with a car loan, typically need to wait until the courts review the case.

For someone worried about the immediate repossession of their vehicle, an automatic stay can be a key protection. They can preserve a resource that is crucial for their daily life while also seeking to eliminate some of their financial obligations. A successful personal bankruptcy filing could lead to a discharge of certain deaths. That discharge may help someone re-balance their budget and catch up on their financial obligations, including their vehicle loan.

For some people, the potential threat of repossession is the deciding factor that pushes them to file for personal bankruptcy. Understanding how bankruptcy protects those struggling with significant debt may benefit those worried about their resources given their current financial challenges.