How to Stop the Repo Man with Chapter 7 Bankruptcy

Before we get started, a quick legal disclaimer: This article contains general information and is not legal advice. You should consult with an attorney before making any legal decisions.

Have you had trouble making your car payments lately? You are not alone. Many people purchase a car they believe they can afford, then something catastrophic happens such as job loss, divorce, or medical emergency that suddenly makes those payments impossible.

This article will tell you how to keep your car from being repossessed, and if the repo man already took your car, how you can get it back – by filing Chapter 7 bankruptcy. Not only can you stop car repossession, but you can get rid of debt such as credit card bills and medical bills. Find out how!

How to Avoid Repossession

The only sure-fire way to avoid repossession is to make your car payments in full and on time. The only other sure-fire way to stop repossession once you’ve missed some payments is to file bankruptcy.

Most automotive retail installment contracts provide that “the lender may take immediate action to secure the collateral if you fail to perform under the contract.” In English, that means that the papers you signed when you bought your car gave the lender permission to repo your car if you fail to pay.

Every state regulates how a repo man can take your car. Typical laws include the manner in which the repossession can happen, which must be “peaceful.” A repo man cannot break locks or damage property. 

Can a repo man open your garage? If it is unlocked, yes. A repo man may also be able to move other vehicles that are blocking access to the car they want.

While you may be successful at hiding your car from the repo man for a while, eventually he will find it. Nothing you do can stop the repo man from taking your car once he is hired to do it – except filing bankruptcy.

How Chapter 7 Bankruptcy Stops Car Repossession

The minute you file a Chapter 7 bankruptcy case, the “automatic stay” is put in place. The automatic stay “stays” or stops any creditor action against you, including car repossession as well as:

  • Wage garnishment
  • Bank account levy
  • Placing a judgment lien on your house
  • Debt collection lawsuits
  • Debt collection letters
  • Debt collection phone calls

The automatic stay is meant to give you some breathing room to rearrange your financial situation. However, it does not solve the matter of being behind on your car payments. Once your bankruptcy case closes, the repo man will be back unless you take further action.

How to Keep Your Car in Chapter 7 Bankruptcy

One solution to your car loan problems is to “redeem” your car in your bankruptcy case. This involves paying either the retail value of the car or the balance of your car loan, whichever is lower. 

Redemption involves coming up with a lump sum payment for the lender. During the four-to-six months of your Chapter 7 bankruptcy case, while you are not paying your car loan or credit card bills, you may be able to save that up. In the alternative, redemption lenders have popped up on the internet recently and they may be able to help you, albeit at a higher rate of interest than your original car loan.

If you can’t come up with the money to redeem your car, you have other options.

Surrender Your Car in Chapter 7 Bankruptcy

If you simply cannot afford your car, you can “surrender” it to the lender in your bankruptcy case. Yes, the repo man will then take your car, or you can drop it off at the dealership. However, the underlying debt will be discharged – meaning, you are no longer responsible for paying it. 

This means that when the lender sells your car at auction, and it sells for less than what you owe on the loan, you are not responsible for paying the difference (called the ”deficiency balance”).

This really isn’t as bad as it sounds. When I declared bankruptcy this is exactly what I did. And shortly after my bankruptcy I was able to qualify for a new car loan.

Reaffirm Your Car Loan in Chapter 7 Bankruptcy

When you “reaffirm” your car loan, you sign a new loan agreement to pay for the car. This agreement can be negotiated by your bankruptcy attorney, and you may be able to roll missed payments into the loan balance or add them to the end of the loan term. 

Bear in mind that when you reaffirm debt, it is not discharged in your bankruptcy case – meaning, if you fall behind again and the repo man takes your car, you are still responsible for paying the deficiency balance.

Consider Filing Chapter 13 to “Cram Down” Your Car

If you have a steady income stream, you might consider filing Chapter 13 instead of Chapter 7. This will allow you to discharge your unsecured debt, such as credit card and medical debt, but also allow you to keep your car, pay it off through your three or five-year repayment plan, and “cram it down.”

What is “cram down?” When you file Chapter 13, you have the power to force the lender to accept retail value for the car instead of the loan balance, and you pay that retail value at prime plus 1-3% interest over the life of your plan. When you complete your plan, you own the car!

People save thousands of dollars by cramming their cars down in Chapter 13. Talk to an attorney if you think you might be able to afford to cram your car down.

Get Your Car Back with Chapter 7

Even if your car has already been repossessed it’s possible you can still get it back. This can be a somewhat complex process and you’ll likely need the help of a bankruptcy attorney. Most bankruptcy attorneys offer a free initial consultation – why not take advantage of that and find out what your options are? What do you have to lose?