Car Repossession and Bankruptcy

A common preceding cause of a bankruptcy filing is a car repossession. On a basic level, a car loan is a secured debt. This means that unlike failure to make your credit card payments, which can result in lawsuits and judgments down the road, failure to make a car payment gives the holder of that secured interest the right to repossess the vehicle in order to pay off the debt.

Bankruptcy offers a solution to repossession in the form of Chapter 13 bankruptcy. Filing the Chapter 13 requires the holder of the vehicle to return it to the debtor immediately upon filing of the case. Failure to do so by the creditor, according to relatively new case law in the Northern District of Illinois at least, is a violation of the automatic stay and can result in sanctions.

The Chapter 13 bankruptcy will often provide for payment to the creditor who repossessed the car through the plan itself, satisfying the bankruptcy code's requirement that the creditor receive adequate protection of its interest. Thus, the creditor still receives some protection for the delinquency on the secured debt but cannot exercise their rights to repossess the collateral without first filing a motion in bankruptcy court to lift the automatic stay.

Of course, the Chapter 13 filing involves more than just the repossession. Often, these types of filings help to undo a license suspension from unpaid parking tickets as well. Regardless, the Chapter 13 is a repayment plan that will include all of your debt, not just the car repossession, and thus consulting an experienced attorney to do so is necessary.