Can Your Vehicle Be Repossessed If You’ve Filed for Bankruptcy?

If you’ve been struggling with debt and haven’t been paying your car loan, the possibility of repossession has probably been looming as a possibility. Though you know that filing for bankruptcy will stop collection efforts temporarily, you’re probably concerned about whether the bank will still be able to take your car, which you rely upon for getting to work, shopping for groceries, taking the kids to school, and going to doctor’s appointments.

The good news is that the same automatic stay that will relieve you of receiving threatening phone calls, emails, and letters will also put a halt on the bank’s repossession action – at least temporarily. What happens going forward will depend upon the type of bankruptcy that you file and whether the vehicle is considered an exempt asset.

If you file for a Chapter 13 bankruptcy, your car loan and all of your other debts will be consolidated into a repayment plan that gives you more time and better terms for paying off your debts. These plans are crafted based on your income and ability to pay and often involve changes to the interest rate that you’re charged or the time frame of the debt.  This is different from a discharge of your debts, which is what happens with a Chapter 7 bankruptcy filing.

If you qualify for a Chapter 7 bankruptcy filing based on the results of your means test, almost all of your debts will be discharged, but the cost of having your loans forgiven is that your non-exempt assets may need to be sold to pay some of what you owed to your creditors. Determining which assets are exempt or non-exempt starts with determining whether to choose federal or state exemptions: In most cases, federal exemptions are more generous.

To keep your vehicle and not have it repossessed, you first need to be up-to-date on your payments. Assuming that is the case, federal law allows you to exempt $4,000 for a single vehicle, and if you don’t use the real estate exemption then you can what is known as a wildcard exemption of $12,575 to extend the protection to your car.

Understanding exemptions and how they apply to your situation is complex, and best explained in a one-on-one conversation specific to your particular case. To set up a time to chat, contact our office today.