Saving Your Car in Chapter 13 Bankruptcy After it is Repossessed
Repossessions And Chapter 13 Bankruptcy:
Even if your car has been repossessed, you can get it back as long as you file a Chapter 13 Bankruptcy Petition before the car is sold at auction. Once a vehicle is repossessed, car loan lenders must provide you a notice stating when and where the car will be sold. By filing a Chapter 13 Bankruptcy Petition, the car lender no longer has the authority to sell the car and must surrender it to you. The only requirements for obtaining possession of the vehicle, after it has been repossessed, are: (1) Proof that you filed a Chapter 13 Bankruptcy Petition before the sale of the vehicle; (2) A valid Drivers License and (3) Proof of Full Coverage Insurance on the vehicle.
Repossessions usually occur once you have become delinquent on loan payments for 30 days or more. Lenders will frequently tell you the only way to get the car back is to bring the loan current. They don't tell you that, by filing a Chapter 13 Petition, you don't have to pay them anything to obtain possession of your car. Moreover, in a Chapter 13 case you don't have to make a lump-sum payment to the creditor to catch up the delinquent payments. You will simply pay for the car over a 3 to 5 year period with the first Chapter 13 Plan payment coming due 30 days after your Chapter 13 Petition is filed.
Reduced Interest Rates and Cramdown:
There are also additional benefits for car loans in Chapter 13 Bankruptcy. You can reduce the interest rate on the car loan to 6.5% (the rate applicable at the time this article was written) and, if the loan is more than 2 and a half years old, you can pay for the vehicle at its fair market value rather than the amount owed on the loan. As this article explains, the process is called a "Cramdown" because the amount of the creditors claim is crammed down to the fair market value of the vehicle.