If you have fallen behind on your monthly car loan payments, you may expect the lender to repossess the vehicle. While you may have some other options for keeping your car, truck or SUV, filing for bankruptcy protection may temporarily stop the repossession.
The effect a bankruptcy filing may have on your car’s repossession likely depends on whether you seek Chapter 7 or Chapter 13 bankruptcy protection.
Chapter 7 bankruptcy
In general terms, Chapter 7 bankruptcy allows you to discharge many outstanding debts rather than repay them. If you seek Chapter 7 protection, you benefit from an automatic collections stay. That is, your creditors may not collect on debts or institute enforcement action during the automatic stay.
For purposes of your auto loan, a Chapter 7 filing should stop the repossession. Before the lender may repossess or resell your vehicle, it must obtain permission from the bankruptcy court. Until that happens, you may be able to cure the default.
Chapter 13 bankruptcy
A Chapter 13 bankruptcy filing seeks to reorganize rather than discharge your debts. If you file under Chapter 13, you also benefit from an automatic stay. Like with a Chapter 7 filing, your lender may not repossess your vehicle during this stay.
If you need your vehicle to travel to work or other places, a Chapter 13 filing may help you keep it. While there are some restrictions, you may be able to negotiate a new payment plan with your lender. If you go the Chapter 13 route, you may end up with a lower principle balance, a better interest rate or both.