Repossession Lawyer

What Is the Car Repossession Process?

When you purchase a vehicle, you sign a contract that legally binds you to make payments based on the terms laid out in the contract. Depending on those terms, falling behind on even a few payments could cause your loan to default.

Once your loan is in default, the lender has the right to take the car back, sell it at an auction, and then sue you for the balance between what you agreed to pay and what they were able to recover in the auction.

But if you’re behind on their car payments, you have legal options. In addition to debt collection laws and credit counseling options, bankruptcy can help you keep your vehicle.

Bankruptcy’s Automatic Stay Pauses Repossession Efforts

Once you file for any kind of bankruptcy, the court will issue an automatic stay and notify your creditors, including your car lender. The automatic stay stops all creditor actions, such as collections calls, harassing letters, and lawsuits. This also prohibits lenders from repossessing your car. Many people discover that without constant pressure from their creditors, they can think clearly and create a meaningful debt relief plan.

However, your car lender may fight back, and ask the bankruptcy court to lift the automatic stay. If the lender files a motion to lift the stay and moves forward with taking your car and auctioning it, you still have options.

Filing Chapter 7 to Stop Repossession

While Chapter 7 typically liquidates all of your non-exempt assets, you may have options regarding your vehicle. Chapter 7 allows you to buy back the car in one lump sum. Sometimes called a redemption, you will have the option of paying the lender your vehicle’s replacement value in exchange for the car. Many times, this value is much less than your loan amount, since most cars quickly depreciate in value.

You can also choose to reaffirm the debt with the lender and agree on new terms. This may include negotiating a new loan amount or payment schedule. However, when you reaffirm a loan, the bankruptcy court will not discharge it as part of your Chapter 7 bankruptcy. If you default on your car loan again, you run the risk of repossession.

Finally, you can sell your vehicle as part of a Chapter 7 proceeding and use the proceeds to pay off your creditors. When you do this, any remaining car loan debt is discharged as part of the bankruptcy.

If the lender has already repossessed your car, sold it, and is now suing you for the difference, a Chapter 7 bankruptcy can discharge the entire debt you owe the lender. However, once the car is auctioned off, you will not be able to get your car back. If you have non-exempt equity in your vehicle (which is rare), you may be able to get your car back as part of your bankruptcy estate.