The Bankruptcy Solution To Car Repossession and Related Debt

Many people fall behind on their car payments.  Unfortunately, just being late on one car payment can put you in default of the sales contract and permit the lender to repossess your car, truck, motorcycle, boat, or ATV.  Worse yet, the lender may not give you advance notice of their intent to repossess the vehicle, though as a matter of practice many lender’s do give notice to pressure you into payment.  If your lender has repossessed your car or is only threatening repossession, bankruptcy can be an effective solution for discharging the underlying debt but may not be the right solution if you want to keep your car.

Filing bankruptcy will force the lender to return the car if it has been repossessed but not yet sold at auction.  Alternatively, if you file before repossession the automatic stay in bankruptcy will prevent the lender from repossessing the vehicle for a time.  However, if you are in default the lender will eventually be able to repossess your car should you file chapter 7 bankruptcy.  In that case, if you want to keep your car you either have to reaffirm the debt or redeem the vehicle.  These options are discussed on which contains a detailed account of the bankruptcy solution to car repossession.  Reaffirming the debt requires signing a reaffirmation agreement that essentially obligates you to continue to be liable for the debt.  Since you filed chapter 7 bankruptcy to get a fresh start and eliminate large monthly expenses, reaffirming the debt to keep a car may not be in your best interest.  With that in mind, you can redeem the car in bankruptcy.  To redeem the car you will have to pay the lender the fair market value of the car or the amount you still owe, whichever is less.  In exchange, you will get title to the car free and clear.  If your car is worth less than the amount you owe “redemption” can be an attractive option.  However, redemption requires making a sizeable upfront payment.  Fortunately, there are some lenders (redemption lenders) who finance redemption loans.  

If you have a deficiency judgment from a past repossession you can often eliminate that debt in chapter 7 bankruptcy.  If your car was repossessed and sold at auction for less than the amount you owe the lender may sue you for the remaining balance.  After the lender has a judgment against you they can collect on their judgment through bank levies or wage garnishment.  To stop these forms of collection and eliminate the amount owed on the judgment many individuals turn to chapter 7 bankruptcy.  

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