It’s much easier to prevent repossession by filing bankruptcy beforehand. But if you’ve already been repo’d, you now have to act very fast.
When Does a Lender Repossess a Vehicle?
When CAN a vehicle lender repossess your vehicle? Just about all vehicle loan contracts let the lender repossess the minute you are late on a payment. There may be a legal grace period, but not usually. This is also true for other breaches of the contract, such as if you let the vehicle insurance lapse. So usually a lender can repossess, without warning, when you are not in fully compliance with any contract obligations.
But most lenders don’t repossess right away. They’d usually rather have you make the payments so that they earn the interest on the contract. But they have the legal right to repossess, and sometimes act very fast.
So how much time do you have before your lender would actually repossess? That depends on your payment history and the repossession practices of the lender. It’s truly hard to tell how many days you can be late, or how long your insurance can be lapsed, before repossession.
Much Better to File BEFORE Repossession
Filing bankruptcy stops repossession from happening immediately. It literally stops the repo agent from taking your vehicle even if he or she has already started to do so.
The moment your bankruptcy lawyer electronically files your case the “automatic stay” goes into effect. This “stays,” or legally stops, virtually all collection efforts against you and your property. Specifically, filing bankruptcy stops the enforcement of lender’s liens against your property. A vehicle repossession is an enforcement of a lender’s lien on your vehicle, and so it is stopped. See Subsections 362(a)(4) and (5) of the U.S. Bankruptcy Code about the “stay… of… any act to… enforce any lien” against your property.
Filing a Chapter 7 vs. 13 Case to Stop Repossession
A Chapter 7 “straight bankruptcy” will stop a pending repossession. It will give you a bit of time to bring your loan current. Usually you’ll have no more than about 2 months, sometime less, seldom more. If your insurance has lapsed you’ll have to reinstate it pretty much right away.
Stopping repossession by filing a Chapter 13 “adjustment of debts” gives you lots more time to catch up on the late payments. Instead of a couple months under Chapter 7, under Chapter 13 you get as much as a few years to catch up. Also you may qualify for “cramdown” of the vehicle loan. If so, after stopping the repo you may not need to catch up at all. Plus you may be able to reduce your monthly payments and pay less overall for the vehicle than you would have under the contract. “Cramdown” is not available in Chapter 7. But even under Chapter 13, you still need to pay to reinstate any lapsed insurance quickly to be able to keep your vehicle.
Getting Back Possession AFTER Repossession
Whether you can get your vehicle back after it’s already been repossessed depends on timing and the bankruptcy Chapter you file under.
As for timing, you DO have to act fast. Otherwise it will be too late to get it back, even through bankruptcy.
Bankruptcy’s “automatic stay” stops the lender, at least temporarily, from taking the next steps after the repossession. That’s because those next steps are at least arguably part of the lender’s enforcing its lien on the vehicle, which bankruptcy stops. This may depend on your state’s laws and local interpretations of bankruptcy law. Your bankruptcy lawyer will talk with you about this in your conversation about the repossession.
The next steps after repossession usually involve selling the vehicle, often in an auto auction. Once your lender sells the vehicle, it’s too late to get back your vehicle through bankruptcy.
Chapter 7 vs. 13 in Getting Back Possession
Assuming you file fast enough, whether you actually getting your vehicle back often depends on whether you file under Chapter 7 or Chapter 13.
A Chapter 7 case will work only if you have a fair amount of money immediately available. You’d have to pay the repossession costs (of likely hundreds of dollars) plus bring the account fully current. If you’re not current on insurance you’ll also have to pay to reinstate it.
Even all that may not be enough. If your lender still doesn’t want to cooperate, it may be able to avoid giving back your vehicle. Whether or not it can be forced to depends on how your local bankruptcy court interprets the law.
Filing Chapter 13 is much more likely to be effective. That’s because it provides a legal mechanism for you to catch up on the back payments over a much longer period of time. This is done through monthly payments in your court-approved Chapter 13 plan. You will still likely have to pay the repossession costs up front. Plus you’ll have to be current on insurance. Then if your plan shows that you’ll catch up on the back payments, most lenders will voluntarily return your vehicle. If not, the bankruptcy court would likely order the lender to do so.