Filing for bankruptcy is never an easy decision. One of the key parts of that decision is figuring out what is going to happen to your most important possessions that you need every day. If you are behind on your car payments, you may be worried about the lender repossessing your car. How this will proceed depends on what type of bankruptcy you have filed. However, no matter which of the two you file, an automatic stay is put into place.
What is an Automatic Stay?
An automatic stay is a court order that lets every lender know that you are beginning bankruptcy proceedings. Once this happens, all collections activity against you must cease. This includes repossessions. If you are behind on your car payments, you should let the car lender know. The courts will notify them in writing to confirm this. Keep in mind that the stay will not last forever. Your lender can also request that the bankruptcy court lift the stay to allow them to continue repossession proceedings. How you should proceed is then determined by which bankruptcy you filed.
Chapter 13 Bankruptcy
A Chapter 13 bankruptcy allows you to make a payment plan to catch up on payments you have missed. This means that as long as you can keep up with your car payments, your lender cannot repossess your car. Additionally, it may be possible to reduce what you owe on your car through a cramdown where the loan is reduced to the current value of the car.
Chapter 7 Bankruptcy
During a Chapter 7 bankruptcy, if you are behind on car payments, you should speak to your lender. This is because a Chapter 7 does not make up missed payments. When you file, if you want to keep the car, negotiate a reaffirmation agreement. This allows you to renegotiate what you owe, or essentially renew your loan with the lender. Once the court approves the reaffirmation, you essentially have a new loan agreement. The last way to keep your car is to have it redeemed. This is where you pay the current value of the car, with the remaining debt discharged.
Keeping your car through a bankruptcy can be vital to ensuring that you can continue to work. With some knowledge beforehand of what to expect, you can continue to own your car even if you find yourself currently behind on payments. If you are considering bankruptcy, consult a bankruptcy lawyer from a firm like Brackett & Strunk LLC for professional advice.