One of the biggest fears that bankruptcy filers have involves the possibility of losing their property once bankruptcy is filed. Most people need to keep their cars to get to and from work and home. Many enter the process already upside down on their car loans. What is recommended when it comes to avoiding repossession during bankruptcy?
The Automatic Stay
Once bankruptcy is filed, whether it be Chapter 7 or Chapter 13, an automatic stay is issued. The automatic stay protects the debtor from continued contact and debt collection efforts from their creditors. The automatic stay protects the debtor from having their car repossessed.
However, whether the debtor can keep the car depends on whether the repossession process has already been started when the automatic stay begins.
No Repossession Proceedings at the Time of Bankruptcy
If repossession process has not already started when the bankruptcy petition is filed, the automatic stay will allow the debtor to keep the car.
In a Chapter 13 bankruptcy proceeding where the debtor is trying to work through a repayment or reorganization plan, the creditor or lender generally will not be able to repossess the car until it has obtained a specific order from the court (or if debtor voluntarily surrenders the vehicle).
If the Chapter 13 repayment plan provides for repayment of past due amounts owed on the car loan, the creditor or lender may not repossess the car during and after the bankruptcy. However, the debtor must remain current on payments during the Chapter 13 process.
The debtor also will need to make payments known as “adequate protection” payments from the time the debtor files for bankruptcy until the Chapter 13 bankruptcy repayment plan has been completed. The purpose of the adequate protection payments it to cover the depreciation of the value of the car during the plan repayment period. The payment amount normally is equal to what is owed on the car payment. The key is to continue making bankruptcy payments until the plan is confirmed.
Repossession Proceedings Started Prior to Bankruptcy Filing
If the repossession process had begun prior to filing for bankruptcy, the debtor may not be able to keep the car so easily. It is possible for the debtor to get back on track if past-due payments are made as part of the repayment plan and the debtor is able to continue making monthly payments.
However, if the debtor is filing for Chapter 13 and the car already has been repossessed, it is always recommended that an attorney be contacted before proceeding any further. The debtor may not be able to get the car back even after a bankruptcy case is filed.
The Option of Redemption
The above options deal mostly with a Chapter 13 bankruptcy. In a Chapter 7 bankruptcy, otherwise known as a liquidation bankruptcy, the option of repayment plans is not available.
One way to avoid repossession is to work with the lender to pay back the amount owed or to cure the default. In some situations, lenders will allow the debtor to pay off the amount owed on the car in one lump sum at its current value. This option is known as redemption.
Redemption does not always require one lump sum payment. A lender may be open to a multiple payment option on the car either under the debtor’s current contract or by entering into a new contract. The debtor must have the ability to actually make these payments. Simply promising to make the payments is not enough for the lender to feel secure that money will actually be paid.
On the other hand, the lender is more likely to work with the debtor to avoid the possibility of the debtor surrendering an older car with limited value. It is for this reason that the lender may be willing to work with debtors on a possible repayment option.
Relief from the Automatic Stay
If the automatic stay has already been issued, and no repossession process has begun at that point, what options does the lender/creditor have?
The lender, if it still wishes to proceed with a repossession, will need to request permission from the bankruptcy court to have the automatic stay lifted. This is done through a motion for relief from the automatic stay. The lender will need to show that it is the proper party in interest with a right to repossess the car. The lender also will need to prove that its interests in the vehicle are not being adequately protected because the debtor is in default or not making timely loan payments.
The debtor will have the right to oppose the motion for relief, and a hearing normally will be set. The judge can either grant or deny the motion depending on the circumstances of the individual case.
An experienced Texas bankruptcy lawyer can help you with any questions you may have about repossession and bankruptcy. Call the Law Office of Marilyn D. Garner NOW at (817) 505-1499 for a free consultation to discuss how bankruptcy may help you.