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My Car is Going to be Repossessed: Can Filing for Bankruptcy Help Me?

While filing for bankruptcy can be a solution in some situations involving the repossession of a vehicle, it may only be a temporary fix in other situations. Whether bankruptcy can help you depends largely on your overall financial situation and your ability to continue to pay for the vehicle, if you wish to keep the vehicle. The type of bankruptcy that you choose to file will affect your ability to avoid a repossession of your vehicle.

Understanding the Car Repossession Process

Texas state law and the terms of your loan or lease agreement determine the process that creditors must follow in the repossession of a vehicle. It’s important that you read your contract paperwork.  Be upfront with your creditor and let them know you will be late.  Some creditors may allow you to get caught up if you are having financial difficulties. Once your car payment becomes overdue, the creditor, or the company that holds the vehicle loan, can repossess your vehicle. This means that the creditor is free to come and take your vehicle from you.  Some creditors give you a 10 day grace period, but Texas law doesn’t require creditors to give you that 10 day grace period and that means the car can be repossessed at any time after a payment is missed. A repossession can remain on your credit report for the next seven years.

After the vehicle is repossessed the creditor will sell the vehicle and apply the proceeds from the sale to your outstanding loan balance.  If those proceeds do not cover the total amount of your loan balance the creditor can then sue you for that balance.  This amount can be discharged in bankruptcy because this debt is now unsecured because the vehicle was sold.

Filing for Chapter 7 Bankruptcy

If you choose to file for Chapter 7 bankruptcy, the U.S. Bankruptcy Court will issue an automatic stay, which prevents your creditors from taking any further collection actions against you until the bankruptcy case is resolved. This means that once the automatic stay is in place, the creditor cannot repossess your vehicle, even if you have not made the payments as agreed. The automatic stay can give you a month or two of relief from repossession, which can be helpful in some situations.
You will ultimately have to decide whether you can afford to make up the loan payments that you missed and continue to make the current loan payments as they become due. If you cannot make the payments, then the creditor will still be able to repossess the vehicle after your bankruptcy is final. In this situation, the only benefit of a Chapter 7 bankruptcy is that you won’t be held responsible for any deficiency, which is the difference between your loan balance and the amount that your creditor received from selling your vehicle. You will be able to discharge that debt in bankruptcy.

Filing for Chapter 13 Bankruptcy

If you have the income to repay the late payments, as well as your current loan payments, then you may wish to file for Chapter 13 bankruptcy. During a Chapter 13 bankruptcy, you get to keep the property secured by the loan as long as you are making your payments as agreed. A repayment plan can last anywhere from three to five years, so you will be able to keep your car during that repayment period. However, if you aren’t going to be able to make your car loan payments, along with your other debt payments as set up in your Chapter 13 bankruptcy repayment plan, then Chapter 13 bankruptcy probably isn’t the best idea for you.

Consult a Houston Bankruptcy Attorney Today

Since every situation is different, only a Houston bankruptcy lawyer can help you determine which course of action is right for you and your family. If you are facing a vehicle repossession or another type of creditor collection action, we can help. Contact Kealy Law Firm right away and we will help you explore all of your available options.