Chapter 13 and Automobiles
The Automatic Stay and Automobile Repossession
When you file a Chapter 13 bankruptcy, your creditors, with few exceptions, are instantly prohibited from further collection activity against you or your property. This is referred to as the “Automatic Stay.”
If your vehicle has not yet been repossessed, the automatic stay prevents the repossession. If your vehicle has been repossessed before you file a Chapter 13 case, the automatic stay prevents the repossessed vehicle from being sold, and you may be able to get the vehicle back upon filing your Chapter 13 case.
What will happen to your truck, car, motorcycle, van, furniture and other property that you want to keep if you file Chapter 13 bankruptcy?
Typically, you get to keep your vehicles and other property that is considered collateral for your loans. The idea behind a Chapter 13 Bankruptcy is to make it more affordable for you to keep the property by lowering the monthly payments that you contracted or agreed to pay per month for that property. In addition to lowering the monthly payment, a Chapter 13 case may also assists in lowering the interest rate and sometimes balance that you must pay to keep the property. For instance, if your car was purchased 910 days before the filing of a Chapter 13 case, it is possible to lower the balance to be paid, the interest rate on that balance and the monthly payment on the loan. This is commonly referred to as a “cram down.” Again, the purpose of the Chapter 13 case is to make your debts more affordable, allow you to save your property and get a “fresh start” and be debt free at the end of the case, which is three to five years.
If you are behind on your payments to your creditors, filing a Chapter 13 bankruptcy stops repossessions, lawsuits, garnishments, evictions, harassing calls, and other collection activities. Your attorney should be able to provide you the amount that is necessary per pay check that has to be paid to the Chapter 13 Trustee for your Chapter 13 plan to work. After you have completed your three to five year Chapter 13 case, the bankruptcy court issues a discharge. Once you receive a discharge, you no longer owe for those items that were included in your Chapter 13 plan. Your car lien holder will release the title to your vehicle and your other creditors will be required to note that you no longer have a debt with them, as it has been discharged. Once you receive your discharge, you will want to begin re-establishing your credit. Remember, at the end of your case and upon receipt of your discharge, you are now debt free, with the exception of your current ongoing mortgage and any non dischargeable debt, such as student loans, that were not paid in your case.
What if you are leasing your car and get behind in your lease payments?
If you are leasing your car and get behind on your lease payments, a Chapter 13 case/plan can help you save your car. Filing a Chapter 13 Bankruptcy stops the repossession or “cut off” of your vehicle. The Chapter 13 plan would be set up to pay the arrearage or amount you are behind in your lease payments and you would resume your ongoing payments directly to the lessor.