Does Chapter 13 Prevent Car Repossession for Overdue Payments?

In many areas of the country, people need a car to commute to their jobs, get groceries and attend to other life activities. In such circumstances, the prospect of having a vehicle repossessed may be a disaster second only to losing a home to foreclosure. Fortunately, a Chapter 13 bankruptcy offers a variety of potential solutions for people in a debt crisis, including a way to prevent or undo a vehicle’s repossession.

Filing for Chapter 13 bankruptcy immediately suspends most debt collection efforts by imposing an automatic stay. Vehicle repossessions are prohibited when an automatic stay is in effect. The suspension on debt collections is only temporary but it gives the debtor some time to evaluate and exercise their financial options.

In a Chapter 13, debts are repaid over a period of years in accordance with a court sanctioned plan. A Chapter 13 debtor may, subject to bankruptcy court approval, keep their vehicle. Past-due car payments are rolled into the periodic payments to be made under the plan if more than five years remain on the loan. The debtor must keep current with the remaining car payments going forward. If there are less than five years remaining on the loan then the entire balance is paid through the Chapter 13 plan payment.

Car loans are very often “upside down.” That is, the total outstanding loan amount exceeds the value of the vehicle. This is because most cars quickly depreciate. A Chapter 13 debtor may not want to pay in full for an asset that won’t have significant monetary value at the end of the plan. If you are in this predicament, you may be able to take advantage of the “cram down” provisions of Chapter 13. A cram down means the amount you owe is reduced to the current fair market value of the car. What’s more, that lowered amount is converted to an unsecured debt, which may be subject to only partial repayment under the Chapter 13 plan. This often makes keeping the vehicle a much more attractive option. However, you should consult with a qualified Chapter 13 bankruptcy attorney to discuss possible restrictions on using cram downs.

In many instances it does not make sense to keep a vehicle. The car may be too expensive and the payments may be too high for you. You may owe money on a car that your family really does not need or that is too costly to maintain. In these cases, the bankruptcy code allows you to surrender the property to the lender. You’ll lose the vehicle but you won’t have to pay the outstanding loan.

The law firm of Jeff Field & Associates handles bankruptcy cases throughout Georgia, with six offices in the Atlanta, Marietta and Athens areas. Our attorneys provide each client with guidance through the available processes of eliminating or reorganizing debt, including Chapter 13 bankruptcy. Feel free to contact us online or call 404-381-1278 for an initial consultation.