Will I lose my vehicle if I file bankruptcy?
If a chapter 7 bankruptcy has been filed, a lender is not able to repossess a vehicle or otherwise collect a debt. However, the court can sometimes grant permission for the lender to take the vehicle.
How the Automatic Stay Stops Repossession Without Permission From the Court
The Automatic Stay goes into effect once the Chapter 7 bankruptcy is filed. Creditors are prohibited to contact you in any way at this point for collection. So your vehicle is protected.
How Can the Court Grant Permission to Repossess Vehicle?
Although you are protected under the automatic stay, the lender has the ability to file a “motion for relief from stay” with the court. This motion presents the opportunity for the lender to show that they are the proper party in interest and has a right to repossess the vehicle based upon the fact that payments were not maintained in a timely manner.
In order to dispute the motion, there is typically a two to three week period to file the objection. In such case, the motion can be denied by the judge if it can be shown that it was procedurally flawed or the lender made a mistake such as mishandling payments. If in fact the motion was properly served and factual, the judge may allow you and the lender to come to agreement yourselves by continuing the hearing.
Curing the Default
It is only in the interest of the lender to repossess your car if the loan has gone into default. The most typical reasons a lender will file for a motion for relief from stay is delinquent loan and insurance payments. Surely, debtors who are well behind on payments makes it difficult to cure the default.