Applying Decades Of Experience To Solve Modern Legal Issues

Can Chapter 7 Bankruptcy Halt the Repossession Process?

On Behalf of | Jun 16, 2021 | Bankruptcy

Filing Chapter 7 bankruptcy can help individuals who are struggling with debt and unable to pay their bills reset their finances and get a fresh start. Also called discharge bankruptcy, Chapter 7 bankruptcy enables debtors to clear some types of unsecured debt, such as personal loans, credit card debt, and medical bills.

Many people who file for Chapter 7 bankruptcy worry about whether they will lose certain assets, such as their home or car. Filing Chapter 7 bankruptcy could temporarily halt the repossession process. But if you have any secured debts, like a car loan, lenders could potentially use the court process to repossess the assets securing the loans.

Let’s take a look at how filing for Chapter 7 affects the repossession process and how you can avoid repossession after filing for bankruptcy.

Chapter 7 bankruptcy and secured debt

Secured debt is a kind of debt that has collateral backing. This just means that if you default on a loan, the lender can use the asset that you put up as collateral to repay your debt. Mortgages, for instance, are “backed up” by your personal real estate, and a car loan is backed up by your vehicle.

When you file for Chapter 7 bankruptcy, your obligation to fully repay a secured debt like your car loan is discharged, which means you are no longer obligated to pay the remainder of the debt you owe. But it’s important to note, the discharge doesn’t remove the lien against your property. A lien is simply a legal right that your car lender has to the vehicle until you have paid the vehicle off.

If you’re hoping to keep your vehicle after filing for Chapter 7 bankruptcy, then you must keep up with your monthly loan payments or come to a new loan agreement with your lender in order to keep your vehicle.

Chapter 7 and car loans

Filing for Chapter 7 bankruptcy automatically creates an automatic stay which prohibits creditors from repossessing items like your car. Chapter 7 brings most collection activities to a halt. But that doesn’t mean a lender can’t eventually repossess your car.

Your lender can file a motion to lift the automatic stay on repossessing your car. If you are not attempting to catch up on your payments or negotiate with your lender, it’s possible that a judge will lift the automatic stay and allow your lender to repossess your car.

In order to avoid having your car repossessed after filing for Chapter 7 bankruptcy, you will want to consider taking the following actions.

Cure your loan default

If you’re able to afford to catch up on your car payments, your lender likely won’t file a motion to repossess your car. However, this option may not be viable for individuals who are too deep in debt to catch up on their loans.

Come to an agreement with your lender and avoid repossession

If you aren’t able to catch up on your loan payments, another way to avoid repossession is to negotiate with your lender. Opening a line of communication with your lender can help your case.

Remember, most of the money car lenders make comes from interest payments on your car loan. Because of that, it’s in the lender’s best interest to let you keep the car if you’re willing to negotiate a way to keep the vehicle. Your lender might be willing to lower your monthly payments, reduce your interest rate, or work out a new repayment plan to help you keep your car.

If you do come to a new loan agreement, just remember that you will be responsible for repaying it, even if you filed for Chapter 7 bankruptcy.

How a Lawyer Can Help

At Telpner Peterson Law Firm, LLP, our Council Bluffs Chapter 7 bankruptcy lawyers are committed to advocating for your best interests. We will review your financial situation and help you understand your legal options for relieving your debt and protecting your assets.

If are struggling with debt and are concerned about the repossession process, please reach out to one of our Chapter 7 bankruptcy attorneys to schedule a no-obligation consultation. We’re in your corner. Call us today at 712-227-6842.