Can my car be repossessed if I file a Chapter 7 bankruptcy?

It’s not uncommon for consumers to get in over their heads with debt and consider filing a Chapter 7 bankruptcy. Chapter 7 bankruptcy is a discharge in which the debtor’s debts are completely discharged. A debtor must meet certain requirements to be eligible to file a Chapter 7 bankruptcy. 

Some consumers may fear that if they file a Chapter 7 bankruptcy, the car loan lender may repossess his or her vehicle. Normally, during a Chapter 7 bankruptcy, the car loan lender is prohibited from repossessing your vehicle or trying to collect the debt owed on the vehicle. That is called an “automatic stay”, and it makes it illegal for most creditors to continue any collection activities.

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I am considering filing a Chapter 7 bankruptcy, but I’m worried about my car. Will it get repossessed if I file?

For most people filing for a Chapter 7 bankruptcy, one of their biggest worries is their vehicle. If a person loses a vehicle in a bankruptcy, he or she loses a way to get to work and will then have even more financial difficulties.

If you are in Chapter 7 bankruptcy, your car lender cannot repossess your car or otherwise try to collect the debt without getting permission from the court. The reason is the automatic stay – when a Chapter 7 bankruptcy is filed, an automatic stay is created. An automatic stay makes it illegal for most creditors to attempt to collect debts.

However, your lender can ask the bankruptcy court to lift the automatic stay in order to repossess your car. In order to do this, the lender must file a “motion for relief from the automatic stay”. In the motion, the lender has to show that it’s a party to the bankruptcy as a creditor, that it has a right to repossess the car, and that its interests are not being properly protected because you are not making timely loan payments.

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