Does Bankruptcy Stop a Vehicle Repossession?

Bankruptcy can stop a repossession, but only temporarily. It will give you time to catch up on your payments and other fees if you take advantage of it. Bankruptcy will allow you to hand your vehicle over to the bank without owing them a penny. This is a good option if you owe too much on the loan to make it worth keeping. The debt will be wiped clean, once and for all.

 How Does the Bankruptcy Work to Protect Me?

When you file for bankruptcy, you are immediately granted the protection of something called the “automatic stay.” This is a legal device that prevents any creditors from collecting on debt that you owe them, at least temporarily.

For example, if you are behind on your home and the bank is attempting to foreclose, a bankruptcy will temporarily halt the foreclosure proceeding. In order for the bank to continuing the foreclosure process, it must jump through some legal hoops before continuing. Its attorneys will have to file paperwork with the court to lift the protection of the automatic stay before it can legally start the foreclosure process.  The court will then give you the opportunity to respond before making a final ruling on the matter.

All of this legal back and forth buys you time. Each step requires legally mandated waiting periods for the other side to respond. So although the automatic stay does not completely stop the actions of your creditors, it does give you time to remedy the situation. If you can afford to catch up on your mortgage and pay the bank’s legal fees it spent trying to pursue the debt through the bankruptcy, then you can save your house from foreclosure.

 How Does the Process Work for a Repossession?

The same process applies to the repossession of a vehicle. If you are behind on payments, most auto loan contracts make it legally possible for the bank to repossess your vehicle immediately. Typically, the bank will wait to repossess your vehicle because it would rather have you catch up on the payments rather than have to go through the time and expense to repossess your vehicle.

But once you get significantly behind, it is likely that your bank will put in motion the process of repossession. If you choose to file bankruptcy, then the automatic stay will immediately stop any repossession efforts. In that time, the bank will have to jump through the same hoops as it does in a foreclosure, which should buy you time to catch up on the vehicle and the bank’s attorney’s fees.

 What if I Want to Give the Vehicle Back?

Many who file bankruptcy choose to have their vehicle “voluntarily repossessed.” If you are behind on the payments, upside-down on the loan, or both, it may make more sense to give up your vehicle while in the process of bankruptcy. You are legally allowed to do so, and the bankruptcy will eliminate any payments and fees owed to your bank for the vehicle.

If you are considering bankruptcy and know that you might face the possibility of repossession, you should consult an experienced bankruptcy attorney about your options.