How to File for Bankruptcy for a Voluntary Repossession

By Heather Frances J.D.

Other than a house, your vehicle may be the most valuable asset you own, but repossession may seem like your only option when you can’t make your car payments. With repossession, your bank can take your car, sell it and apply the proceeds toward your loan balance. However, bankruptcy may allow you to restructure your loan so you don’t face repossession, and bankruptcy can erase your remaining debt if your vehicle has already been repossessed.

Bankruptcy Qualifications

Most individual bankruptcy filers use either Chapter 7 or Chapter 13 of the U.S. Bankruptcy Code. If you file under Chapter 7, a court-appointed bankruptcy trustee will sell eligible assets, if any, and use the money to pay your creditors. Under Chapter 13, a repayment plan is established under which you make payments to your creditors using your disposable income. You qualify to file under Chapter 7 only if you meet certain income requirements established for residents of your state. Chapter 13 bankruptcy does not have income limitations but requires that you have some type of regular income.

Automatic Stay

You may be able to work with your creditors to adjust your payments, thereby eliminating the need for repossession. However, you can also stop repossession by filing for bankruptcy since it offers the protection of an automatic stay. An automatic stay stops your creditors from continuing their collection efforts, including repossession, and becomes effective immediately once you file. The stay does not reverse previous collection actions, though, so it will not undo a repossession, voluntary or not.

File a DBA for your business online. Get Started Now

Chapter 7

In a Chapter 7 case, your trustee can sell your property only if it is not protected by an exemption available under federal or state law. Although state laws vary regarding which exemptions you can use, vehicles are frequently eligible. However, if your vehicle has already been repossessed, your creditor may try to come after you for the balance owed on the loan. Since exemptions only protect assets from sale rather than eliminate any remaining debt on those assets, you can’t eliminate debt owed on your vehicle loan simply because the vehicle qualifies for a Chapter 7 exemption. Instead, the debt owed on your car loan is eligible for discharge, or elimination, once you have completed your Chapter 7 case.

Chapter 13

Chapter 13 does not involve selling any assets, so exemptions aren’t necessary to protect your assets from bankruptcy liquidation. However, Chapter 13 bankruptcy may allow you to prevent repossession by catching up on your overdue car payments over the course of your repayment plan. While you are catching up on your payments, your lender is not permitted to take your vehicle because of the automatic stay. As in a Chapter 7 case, the bankruptcy court can discharge any vehicle loan debt that remains after you complete your repayment plan.

File a DBA for your business online. Get Started Now
What Happens When You Reaffirm a Vehicle After Bankruptcy?


Related articles

Does a Bankruptcy Discharge Reverse an HOA Foreclosure for Unpaid Dues?

When you get behind on your dues, your homeowners association can begin foreclosure proceedings against your property even if you are current on your mortgage and other debts. Though bankruptcy can give you a financial fresh start, it does not reverse past consequences of your debt. Thus, bankruptcy cannot reverse a foreclosure caused by your unpaid dues. However, bankruptcy can help you stop the foreclosure process if it is not yet complete.

Ways to Prevent the Loss of Your Home in Chapter 7 Bankruptcy

U.S. bankruptcy law serves two purposes. The first is to give people an opportunity for a new start by wiping away some or all of their debts. The second is to ensure creditors are treated fairly. If you are in jeopardy of losing your house, Chapter 7 bankruptcy offers you an opportunity to slow down the foreclosure process and catch up on your late mortgage payments.

Can They Take My Car in a Private Bankruptcy in the US?

The vast majority of consumers file for bankruptcy under Chapter 7 or Chapter 13. Chapter 7 bankruptcy allows the court to sell any item that is not exempt under the bankruptcy laws and to distribute the proceeds from that sale to the debtor’s unsecured creditors. Chapter 13 requires debtors to make monthly payments to pay down the debts owed. The Chapter 7 process takes approximately 90 days to complete, while the Chapter 13 process typically takes between 3 and 5 years. At the end of both processes, all but certain legally excepted debts will be discharged. Since Chapter 13 involves paying down debts, you are most at risk of losing your car under Chapter 7. However, there are some ways of holding onto it.

Related articles

Can a Primary Residence Be Seized if You File for Bankruptcy?

Although filing for bankruptcy can help avoid being overwhelmed by debts, you may not be able to keep all your assets. ...

Can I Convert to a Chapter 7 Without Losing My House or Car?

When you file for Chapter 13 bankruptcy protection, the court requires you to make payments on a three to five-year ...

How Does Bankruptcy Affect Homebuying?

Bankruptcy can give you a fresh financial start by allowing you to restructure or erase your debts under a ...

Bankruptcy & Investment Property Foreclosure

When housing prices fluctuate, your investment property may lose so much value that you end up owing more on your ...

Browse by category
Ready to Begin? GET STARTED