What if I don’t want to keep the car?
Typically, Chapter 7 is used when a borrower no longer wants the vehicle and is interested in wiping out the remaining loan balance. While that is still an option in Chapter 7, borrowers can also use Chapter 7 to keep the car and prevent a car repossession.
Will bankruptcy stop a car repossession?
Yes, when a Chapter 7 or Chapter 13 case is filed an automatic stay is instantly put into effect. The automatic stay is a federal law which stops all forms of collection activity, including car repossessions already scheduled to occur.
Can the bank garnish my wages?
Often, after a repossession auction there will not be enough funds from the sale to pay the loan in full. In cases such as these, the bank may sue the borrower for the remaining balance (deficiency). Additionally, the bank will usually add interest, late penalties, and legal fees onto the balance.
How does Chapter 13 prevent a car repossession?
In Chapter 13 bankruptcy, the borrower can have up to 5 years to pay off the car loan. This provides time to catch up on payments by spreading the past-due balance over essentially a new 60-month loan.
