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Protecting A Car In A Personal Bankruptcy

Posted on June 20th, 2014

Falling behind on a car loan can result in the lender repossessing the vehicle. While it is possible to stop repossession by filing for personal bankruptcy, protecting a car from the creditor may only be temporary. It is important to understand the rights a creditor has to repossess a car during a Chapter 13 bankruptcy and a Chapter 7 bankruptcy.

 

Filing for personal bankruptcy results in an automatic stay. A creditor must ask the bankruptcy court to remove the stay before repossession or foreclosure can take place. As long as the consumer makes the monthly payments under a court-approved debt repayment plan of a Chapter 13 bankruptcy, a car remains protected by the stay.

 

Consumer assets that are not protected by state or federal law are sold in a Chapter 7 bankruptcy to repay creditors. Lenders of auto loans usually file liens against the vehicles. This makes them secured lenders and gives them rights to the vehicle that supersede those of other creditors when the court releases the vehicle from the automatic stay.

 

A consumer who filed for personal bankruptcy might be able to prevent repossession by negotiating with the creditor that holds the lien on the vehicle. The bankruptcy law regulates the circumstances under which a consumer may negotiate with a creditor to avoid one creditor being favored over another. A consumer who improperly negotiates a debt with a creditor might be prevented from filing for bankruptcy or could have a bankruptcy filing dismissed.

 

A consumer in Arizona should contact a Phoenix bankruptcy attorney when filing for bankruptcy or contacting a creditor to renegotiate the terms of a loan. Bankruptcy attorneys know and understand the complex bankruptcy laws and can assist a consumer with car repossession issues.

 

Source: Fox Business, “Can lender repossess my car in bankruptcy?,” Tara Baukus Mello, Feb. 1, 2013

 

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