Will I Lose My Car if My Chapter 13 Is Dismissed?

By Heather Frances J.D.

Vehicles are one type of asset the court can address during Chapter 13 bankruptcy, but a dismissal won’t necessarily affect your ownership of a vehicle that has been paid off. Since the only creditor who can repossess your vehicle is the one who holds the loan on it, none of your other creditors can take your car. However, if your case is dismissed, you may have to sell some of your assets, including your car, to raise the cash to pay your remaining debts.

Chapter 13

Chapter 13 bankruptcy allows the debtor to restructure his debt by obtaining court approval for a three or five year repayment plan. If the debtor makes the payments as scheduled, any remaining debt will be discharged at the end of the repayment period. Once the debtor’s Chapter 13 case is filed, creditors are prohibited from collection actions against the debtor, including foreclosures or repossessions. Many debtors choose to file Chapter 13 specifically because they don’t want to lose their homes or cars.

Past and Future Payments

Past due auto payments are typically included in the debtor’s repayment plan, but he must keep up with current payments during the life of the plan. Since a vehicle loan is a secured debt, the repayment plan must provide that the lender receives at least as much in payments as the vehicle is worth. However, if the loan was made within certain time frames before filing, the repayment plan must provide for full payment of the loan, not just the value of the vehicle.

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Dismissal

A Chapter 13 case may be dismissed voluntarily by the debtor, but it can also be dismissed by the court if the debtor fails to keep up with his repayment plan. If the debtor falls behind because of a hardship like a serious illness that interferes with the debtor’s ability to work, the court may issue a hardship discharge, which means the debtor will receive a discharge of his remaining debt without having to complete the repayment plan. Otherwise, the debtor will not receive a discharge if his case is dismissed.

Automatic Stay

If your case is dismissed, the automatic stay that protected you from collection actions is lifted. This means your creditors can resume efforts to collect on your debts. If you are still past due on your vehicle payments, they are still considered due and your lender can repossess your vehicle. If you have paid off your loan before your case is dismissed, none of your creditors will be able to repossess your vehicle since there is no loan on it.

Options

If you are worried about losing your car if your Chapter 13 case is dismissed, you have options that will allow you to keep your it. For example, you can pay off your past due balance and keep your car loan current. You’ll still have a loan on your vehicle but if your payments are current, your lender cannot repossess your car. Alternatively, you could potentially prevent the dismissal before it happens by modifying your repayment plan. If you qualify, you could convert your Chapter 13 case to a Chapter 7 case and then reaffirm the car loan, which exempts the loan from discharge during the Chapter 7 case, thereby allowing you to keep the vehicle if you keep making payments on the loan as originally scheduled.

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What Happens When You Reaffirm a Vehicle After Bankruptcy?

References

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