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Can a car be repossessed during bankruptcy?
Question:
I may need to declare bankruptcy. One of the debts that I’m having difficulty paying is my car loan. If I declare bankruptcy, will that stop the lender from repossessing the car if I can’t make the payments?
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Unfortunately, a car can be repossessed during bankruptcy if you don’t make arrangements to keep paying the debt. Bankruptcy primarily acts to wipe out unsecured debts—debts such as credit card debt, where there is no property or asset acting as collateral for the debt. When there is a secured debt, the creditor retains the right to repossess it and use the property to satisfy the debt, though the creditor may then be unable to sue for any amount owing above and beyond the value of the collateral.
The automatic stay will prevent an immediate repossession of your car, but the lender is likely to ask the court to remove the stay and allow repossession. If you can't make the payments, the court will probably allow the lender to proceed with the repossession.
There are ways you can keep your car in bankruptcy, however. They differ depending on which type of bankruptcy you file -- Chapter 7 or Chapter 13. You can learn more about these options in Your Car in Bankruptcy.