Repossession and bankruptcy are ugly words for car owners. Both indicate that your finances are no longer under your personal control. While declaring bankruptcy is a remedy of last resort, it can provide substantial relief -- and under some circumstances, help avert repossession of your car. While the simple act of retaining a bankruptcy attorney won't foil the repo man, you may have options to remedy the situation.
Different types of bankruptcy proceedings are called chapters. Individuals generally avail themselves of Chapter 7 or Chapter 13. Under Chapter 7, the debtor's assets are liquidated to pay off creditors. With a few exceptions, such as child support, any debt that remains is forgiven. Under Chapter 13, the debtor's financial obligations are restructured so that she may pay them over a reasonable period of time. All forms of bankruptcy leave a stain on the debtor's credit history.
Regardless of whether you file Chapter 7 or Chapter 13, the court will issue an "Order for Relief" as soon as you file for bankruptcy. Also known as an automatic stay, the Order for Relief prevents creditors from taking action to collect what you owe them. The repo man cannot take your car, as long as the Order for Relief is in effect -- unless he has filed documents with a court to repossess your car before you filed for bankruptcy. Even though you get to keep your car, at least temporarily, you may be required to make "adequate protection" payments. These payments cover the depreciation of the car. You may check with a bankruptcy attorney to see if such payments are necessary.
If you can continue making payments on your car, you may stand a reasonable chance of preventing repossession by filing Chapter 13. If you can continue making car payments, Chapter 13 allows you to work out a payment plan for the amount in arrears with the car dealer. Sometimes, you can even devise a plan whereby you pay the lender the depreciated value of the car, instead of the amount due. Such plans are called "cram downs." If you are trying to keep your car, you may make payments to the lender to ensure adequate protection of your car throughout the bankruptcy proceedings. These payments protect the lender from losses because your car depreciated during the proceedings.
Chapter 7 also allows you to keep you cars under certain circumstances. Since the car loan is secured debt, the bankruptcy court will not use your car to pay off your other debts. This leaves you with several options that can help you keep your car. You can reaffirm your old car loan and continue to make payments. This reaffirmation effectively acts as a new contract. In some instances, particularly if you have always stayed current with your car payments, you can continue paying, as you did before. Alternatively, you can purchase the car from the lender at its current value. Unlike the cram down, which allows you to negotiate new payments, you must pay for the car with a lump sum. If none of these options are feasible, the lender can repossess your vehicle.
Each situation is unique, so double check with your lawyer about the best way to keep your car. For example, luxury cars might be treated differently, as would non-essential cars. In a Chapter 7 bankruptcy, such vehicles might be liquidated to pay down your debt.