Do I Let Them Repo My Car Before Bankruptcy?

Knowing what to do with the car is important before bankruptcy.

Not being able to make your car payment is stressful. It is also more common than in the past. According to Bankrate.com, banks repossessed 1.6 million vehicles in 2008.

Can They Repossess After Bankruptcy?

A discharged bankruptcy means that your obligation to pay the car loan is gone. The bank still has a lien on the car if they loaned you money to buy it. Therefore the bank can repossess the car if it is not paid for.

Repossession Before Bankruptcy

If you let them repossess your car before you file, the lender may call it a voluntary repossession, which may look better on your credit report than a regular repossession. You will need to include the car note in your bankruptcy so the court will discharge any deficiency. A deficiency is the amount left over from the original loan after the bank sells the car.

After You File?

Once you file for bankruptcy, the bank cannot collect on the debt while the bankruptcy is active. You will need to tell the court on Statement of Intention that you intend to give the car back. Repossessing is definitely collecting, so the lender can't repossess the car while the bankruptcy is active unless they get permission from the court. Once the court issues a discharge, the bank can repossess at any time. The bank may not report a repossession on your credit report after a bankruptcy, but your credit will be severely damaged anyway.

Before or After Bankruptcy?

There is no difference in the net result. The car and the debt is gone with a bankruptcy. It is just a matter of timing.

References

• NPR: More Lenders Reluctant to Reposes Vehicles
• Bankrate.com: Repo Man Can Even Strike After Bankruptcy
• Nolo: What Happens to Your Car in Bankruptcy?

Resources

• United States Courts: Bankruptcy Basics