When a financial crisis looms, it can be difficult to figure out what steps you should take first. You might think of filing for bankruptcy, then your auto lender sends a repossession agent for your car while you’re mulling it over. If you file for Chapter 13 -- and if you do so relatively quickly -- you may be able to get the vehicle back. Chapter 13 is the form of bankruptcy where you agree to pay your debts off over a period of years. You get a few perks in exchange, like keeping your property.
If Repossession Happens Before You File
When a lender repossesses a vehicle, it sells the vehicle to collect as much of the defaulted loan balance as possible. When your vehicle is sold, it’s gone -- you can’t get it back. But you should have a week or two before this happens, and depending on the state you live in, lenders may be legally obligated to let you know when and where the sale or auction will take place, and that lets you know how long you have to act. If you file for Chapter 13 within this time period, an automatic stay goes into effect. The stay is a legal bar against your creditors taking any actions to collect your debts, including selling your vehicle. <!--[if gte mso 9]>
Your Proposed Payment Plan
Chapter 13 is more complicated than Chapter 7. It involves submitting a proposed payment plan to the court, along with your petition. The payment plan shows the judge, the trustee and your creditors how you’re going to meet your ordinary living expenses and make Chapter 13 payments to the trustee. The trustee uses this money to pay down your debts, apportioning it among your creditors each month. Getting your car back may hinge on your proposed plan. It must convince the court -- and your lender -- that you have enough disposable income left after paying your regular monthly bills that you can include your missed car payments in the payment plan and remain current with the loan going forward.
Filing a Motion for Turnover
When you’ve filed your petition and proposed plan, you can then file a complaint for turnover in your bankruptcy case. The complaint tells the court why you really need your car and asks the judge to order your lender to return it to you. The most obvious reason you may need your vehicle back is so you can get to work and earn money to pay off your creditors in your Chapter 13 plan. If you have another compelling reason, such as a sick family member who needs transportation for medical care, you can include this as well. If the court grants your request, your lender must turn your car back over to you.
If your payment plan clearly shows how you intend to pay the money you owe, your lender may give your car back without waiting for the judge to order it. Otherwise, you may have to appear in court for a hearing.
Adequate Protection Payments
Bankruptcy law requires that secured creditors -- those with loans anchored by collateral -- must have adequate protection during the proceedings. It may be several months after you file your bankruptcy petition before the court approves and confirms your payment plan. During this time, your car is depreciating. It wouldn't be fair to the lender if it had to wait, receiving no payment, while your car's value decreases. You’ll probably be required to make adequate protection payments during this time period. Adequate protection payments are based on the value of your vehicle and how much of your usual monthly payments would typically go toward principal. They’re usually close to the amount of your regular car payment.
Repossession After You File
If your lender attempts to repossess your car after you’ve filed for bankruptcy, this is against the law -- the automatic stay doesn't let creditors collect after this point. Your lender can file a motion with the court, however, asking the judge to lift the stay if your proposed plan doesn’t cover your past due payments or show that you can keep current with the loan going forward. It can also file a motion for relief from the stay after your plan is confirmed if you fall behind with your car payments again.