Keeping up with your auto loan payments can be difficult if you have many other debts. If you are behind on your payments, you may fear that your lender will order your vehicle’s repossession. Yet, you may be planning on filing Chapter 7 bankruptcy, and will be able to afford them once you have other debts discharged. So long as your vehicle is exempt from your case, you may have ways to save it from repossession during proceedings.
Your options for protecting your vehicle
Once you file for Chapter 7 bankruptcy, an automatic stay will go into effect. This injunction will provide you relief from creditors, who cannot pursue your debts while it is in place. It is possible, though, that your auto loan lender will file a motion for relief. This motion will allow them to continue pursuing your past due payments – or to order your vehicle’s repossession – during your automatic stay. The court may grant your auto loan lender’s motion at its discretion, but there are options for working with your lender to prevent this outcome.
One way you can protect your vehicle is by redeeming its value, meaning that you would pay off its current market value to your auto loan lender. The drawback of this arrangement, though, is that your lender will likely require you to make a lump sum payment to satisfy your debt. While making this payment will be difficult during your bankruptcy case, it could work if you are able to receive a loan from a specialty lender, a relative or a friend.
Alternatively, you can protect your vehicle by reaffirming your debt on it. In doing so, you will negotiate an agreement with your auto loan lender that allows you to keep paying for your vehicle as if you did not file bankruptcy. You may only be able to reaffirm your auto loan, though, if doing so would not cause you financial strain. Yet, so long as you can – and do – make your auto loan payments, you will be able to keep your vehicle.
Keep in mind that your auto loan lender can order the repossession of your vehicle if you fail to meet the terms of your reaffirmation. Your lender will then sell it at auction to satisfy your outstanding debt. You will be responsible, in this case, for paying the deficiency balance remaining after its sale and any auction fees the lender incurs.
Protecting your vehicle from repossession is possible after filing Chapter 7 bankruptcy. But your ability to keep it will depend on whether you can afford to. A bankruptcy attorney can help you determine whether it makes financial sense in your situation.