Can the Lender Take Your Car in Chapter 13 Bankruptcy?

Can the Lender Take Your Car in Chapter 13 Bankruptcy?

Richard Fonfrias, J.D.
Chicago’s Financial Rescue & Bankruptcy Lawyer
Fonfrias Law Group, LLC


In a Chapter 13 Bankruptcy, the trustee does not take and sell your property. You are allowed to keep all of your assets, even those that are not exempt. In exchange for not seizing any of your assets, including your car, you must repay part of your debt through your court-approved repayment plan.

If you are behind in your car payments …
… the law allows the lender to seize your car without notice to you. So if you think the loan company may try to take your car soon, then you should consider filing for bankruptcy so your car won’t be repossessed. A repayment plan bankruptcy (Chapter 13) will let you bring your car payments current. Plus the court-approved plan will give you three to five years to completely pay off the loan.

On the other hand, a Chapter 7 liquidation bankruptcy will merely slow down the repossession, and give you just a few months to bring your payments current.

When you file for bankruptcy…
…the court issues an automatic stay, which immediately forces all of your creditors to stop all collection activities against you. None of your creditors can call you, proceed with a lawsuit, repossess, foreclose or sell your assets. In nearly every case, the bankruptcy protects you.Your creditors cannot continue any collection activities against you without first getting permission from the bankruptcy court.

Once your car is repossessed…
… you have a very short time – often less than two weeks – before the lender can sell it to someone else. If the lender sells your car and the title passes to the new buyer, then you cannot usually get it back. But if the lender hasn’t sold your car, then you still have the opportunity to get it back because the automatic stay will prevent the lender from selling it.

Even so, you must act fast and file bankruptcy before your car is sold if you want it back. Here’s what you need to know.

A Chapter 7 Bankruptcy is usually not…
… a good choice if you want to reclaim your car from the lender. This is because a Chapter 7 does not allow you to bring your payments current. The lender may be willing to negotiate the return of your vehicle. Or the bankruptcy court may force the return of it. But in either case, you will probably have to pay all repossession costs and bring your payments current very quickly, which most people can’t do.

One way you can reclaim your vehicle is by entering into a reaffirmation agreement with the lender. This means you agree to be liable to pay the loan, just as if you had never filed bankruptcy. And that you waive the discharge of the car loan that would normally be erased in your bankruptcy proceeding.

A Chapter 13 Bankruptcy gives you your best…
… opportunity to get your car back because it lets you bring your payments current through the court-approved repayment plan. If you file a Chapter 13 bankruptcy after the repossession, the loan company will likely return the car to you and require that you pay the costs of repossessing the vehicle, most often a few hundred dollars.

If the lender doesn’t return your vehicle to you, the bankruptcy judge will usually order it to do so. Then you have between three and five years to pay off your car loan through your Chapter 13 repayment plan.

Speak with your bankruptcy lawyer to determine whether Chapter 7 or Chapter 13 is your best course of action. If you have any questions about what happens to your car in bankruptcy in Illinois, please contact Chicago BBB bankruptcy attorney Richard Fonfrias. Rich also invites any other questions you may have about bankruptcy in Illinois, foreclosure, credit card debt, loans, tax liens, or other any other legal financial question . Rich and his experienced bankruptcy team are ready to help consumers solve their money problems. The Fonfrias Law Group is a Chicago bankruptcy law firm that offers financial legal services including bankruptcy, foreclosure defense, tax defense, debt consolidation, bad credit repair, loan and mortgage refinancing advice, credit card and debt management, and more.