Massachusetts Bankruptcy Lawyers Anthony Bucacci and Robert Simonian (508)673-9500

Car Repossession and Chapter 13 Bankruptcy

Find out if a car loan lender can repossess your car during bankruptcy, and whether you can get it back if the repossession happened before you filed.

The Automatic Stay Stops Car Repossession

When you file for Chapter 13 bankruptcy, the court puts an order called the “automatic stay” in place that prohibits debt collection attempts. The stay applies to most, but not all, creditors and debt types.

For instance, the stay will stop collections for credit card debt and other loans, as well as a foreclosure sale. It will also prevent a lender from repossessing your car.

However, the stay won’t stop criminal actions, child custody, or visitation proceedings, and, depending on your state law, certain eviction proceedings. (Learn more in How Bankruptcy Stops Your Creditors: The Automatic Stay.)

Chapter 13 Bankruptcy Helps You Keep Your Car

Here’s how the automatic stay protects you in two different repossession situations.

You Still Have the Car When You File for Bankruptcy

If the lender hasn’t repossessed your car when you file for bankruptcy, the automatic stay will prevent the lender from repossessing it until the bankruptcy judge approves your Chapter 13 repayment plan. If your repayment plan repays any missed car loan payments (the arrearage), the lender can’t repossess your car during your bankruptcy or after it concludes (assuming you stay current on your payments).

Even so, you must make “adequate protection” payments from the time you file for bankruptcy until your plan is approved. These payments cover the depreciation of your car during this period. Usually, adequate protection payments are equal to the amount of your car payment. So you should plan to keep making your car payments until the court confirms your plan.

When the Stay Might Not Protect You

The stay lifts by operation of law (which is another way to say “automatically”) and will go away if you:

  • file a Chapter 13 bankruptcy shortly after the court dismisses a previously-filed Chapter 13 case (the stay will last for 30 days only unless you file and win a motion requesting additional time), or
    reject a personal property lease, such as for a car or equipment (the automatic stay will lift on the rejection date).
  • Also, a creditor can ask the court to “lift” or remove the automatic stay to continue collection proceedings during a bankruptcy case. A lender who can show that it stands to lose money—for instance, you stop making your car payments during your case—will have a good chance of winning such a motion.

The Lender Repossessed the Car Before You Filed for Bankruptcy

In some cases, if the lender repossesses your car shortly before you file for Chapter 13 bankruptcy, you might be able to get the car back. In your repayment plan, you’ll need to provide for the payment of the arrearage and be able to continue making your monthly payments. If your car has been repossessed and you plan to file for Chapter 13 bankruptcy, contact an attorney immediately. (To learn more, see My lender repossessed my car right before bankruptcy. Can I get it back?)

Other Chapter 13 Benefits: Reducing a Car Payment

f you’re worried about your car getting repossessed, it’s likely that you can’t afford the payment. If you owe more than what the vehicle is worth, Chapter 13 bankruptcy can help.

You can reduce the loan balance on the car (or boat, storage building, furniture, jewelry, vacation home, and similar property) to the value of the property if the loan meets certain conditions (more below). You can also lower a high-interest rate to a more affordable amount. Any remaining amount gets treated as unsecured and will only get paid if you have room in your budget.

The ability to alter loan terms is called a cramdown, and it’s available for just about any type of loan secured by the property except for the mortgage on your principal home or a recently purchased item (more limitations below).

Example. Jean owes $10,000 on a Prius she bought three years ago, but it’s only worth $8,000. In Chapter 13 bankruptcy, a cramdown will allow Jean to reduce the amount she must pay for the car loan to $8,000.

The bankruptcy code also allows you to reduce a high-interest rate. The creditor is entitled to receive the prime interest rate plus 1 or 2 points. (Most courts accept the prime rate published by the Wall Street Journal.) For instance, if the current rate is 4%, most bankruptcy courts would approve a cramdown to around 6% (this will change as rates rise).

Limitations on Car Cramdowns

The cramdown option isn’t limitless. It doesn’t apply to new car loans (and other types of property), and it doesn’t survive a Chapter 13 case that is dismissed rather than discharged.

  • No cramdown for a recent property purchase. Cramdown isn’t available on a loan used to buy a vehicle during the 910 days before filing the bankruptcy case. You can cramdown car title loans that weren’t used to purchase the vehicle even if that title loan was taken out within the 910 days (for instance, you used the car as collateral for another financed purchase).
  • No cramdown in a dismissed Chapter 13 case. You’ll get the benefit of the reduced balance and interest rate only if you complete your Chapter 13 plan. If the case gets dismissed, the loan will revert to its original terms and the creditor will have the right to collect the total amount owed at the higher interest rate.

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Car Title Loans & Bankruptcy

A car title loan is when you borrow money and offer your car as collateral, and if you default, the lender can repossess your car. Exactly how much you may borrow and how quickly you need to repay the loan depends on your loan contract and the value and equity in your car. The lender may be able to take your car and sell it, keeping the difference between what you owed on the loan and the sale price. If the vehicle sells for less than what is owed you can still be in debt to the lender. If that were to happen you could discharge the debt in bankruptcy whether it is chapter 7 bankruptcy or chapter 13 bankruptcy. What the lender is permitted to do is dependent on state law and some states don’t allow vehicle title loans at all.

Note that you will most likely need to pay back a lot more than what you borrow. Hi interest rates and the cost of borrowing the money, means these are usually very expensive loans. The Federal Trade Commission says lenders often charge a title loan APR of 300%. Some states cap APRs for vehicle title loans, but the Consumer Financial Protection Bureau extended its deadline for putting new protections into place for borrowers who take on vehicle title and other high-cost installment loans. It has proposed rolling back requirements for lenders to determine upfront if borrowers could afford to repay the loans. Often people in desperate situations will try to obtain such a loan before filing bankruptcy.

What is a car title? A car title is an official, state-issued document that says who owns the vehicle. It will list the owner’s name and the car’s year, make, model and the vehicle identification number or “VIN Number.” Every time the car has a new owner and every time the owner moves to a new state, the title will change. Vehicle title loan lenders will often require a “clear” title, meaning you own your car outright and free and clear of other liens or loans against the vehicle.

What if you don’t own your car outright? It may be harder to get a vehicle title loan or you may not be able to borrow as much money as you may need, or you may not be able to get a car title loan at all if you already have a loan on your car, depending on your state’s laws. You technically don’t own the car, the lender does. Depending on your state’s law, you may not even have a title in-hand, the lender may have it. If you do have the title and still owe on your car, it will say there is a lien on your car. This makes in more difficult to obtain such a loan.

The Benefits of a Car Title Loan

Car title loans are loans of last resort. It’s possible that a bank or credit union will offer car title loans at lower rates than storefront lenders.

Easier to Qualify

Because the lender knows it has something of value to take (your car) if you don’t pay it back, it is likely to have more relaxed credit score and income requirements than those for other types of loans. However, your state might impose certain income or other requirements. Again, a title loan should be a last resort for an emergency situation. If you are considering such a loan you should consult with a bankruptcy attorney first to explore other options.

Greater Loan Amount

Depending on how much your car is worth, you may be able to borrow a greater amount than a payday loan, which is another type of installment loan that uses your paycheck as collateral instead of a car title. Most auto title loans are for 25% to 50% of the car’s value, usually between $100.00 and $5,500.00 though some lenders may offer as much as $10,000 or more.

• How do you know how much your car is worth? Lenders will use industry standards like NADA or Kelly Blue Book to look up how much your car is worth. Do not expect that they will use the high retail value but rather the wholesale or trade in value. They will usually offer you less than this amount so that if you don’t pay back the loan and they take your car, they can then sell it for a profit. You can use the same online industry guide for free to get an idea of the amount you could borrow.

The Drawbacks of a Car Title Loan

We can’t emphasize this enough that vehicle title loans are expensive, more expensive than nearly any other type of credit and potentially risky. If you live in Massachusetts and are considering such a loan it may be best to schedule a free consultation with a debt lawyer or bankruptcy attorney before you make a mistake.

A Cycle of Debt

Lenders for car title loans make more money if borrowers stay in debt. In addition to high APRs, title lenders often charge fees or costs. If you cannot repay the loan, a “rollover” loan would fold all of those costs into a new loan. What sounds like a plus really isn’t because the new loan would add more fees and interest, making it even more difficult to get out of debt. CFPB data suggest that’s exactly what happens as a significant number of vehicle title loan borrowers enter multiple rollover loans and the cycle of debt begins.

You Could Lose Your Car

Default on your car title loan and the lender could repossess and sell your car. To add insult to injury, you may even be charged a repossession fee and auction fees. Some lenders require borrowers to furnish them an extra set of keys or install a device that could impair your ability to start the engine if you do not make payments. These devices may be used for repossession or as a way to remind borrowers to pay their loans on time. When the CFPB studied vehicle title loan borrowers between 2010 and 2013, 1 in 5 or 20% had their vehicle seized or repossessed.

If you find yourself in a situation where you are in debt and desperate for money to keep up with your bills it may benefit you to speak with us. We are Massachusetts bankruptcy attorneys serving all of Bristol County Massachusetts and Plymouth County Massachusetts. Attorneys Anthony Bucacci and Robert Simonian are Massachusetts bankruptcy lawyers helping people file bankruptcy in all of Massachusetts and particularly Southeastern Massachusetts including Fall River, Seekonk, Swansea, Freetown, Westport, Somerset, New Bedford, Dartmouth, Assonet, Fairhaven, Assonet, Mattapoisett, Middleboro, Lakeville, Raynham, Attleboro. Call us today or visit our website today to schedule a free consultation.

Considering Bankruptcy Undecided or Unsure What To Do ?

Talk To Us About Your Options When Considering Bankruptcy :

Are You Considering Bankruptcy Undecided or Unsure What To Do ? We always tell potential clients to talk to us first to see if bankruptcy is in their best interest. The consultation is always free. Talk with Attorney Robert Simonian or Attorney Anthony Bucacci in private and in total confidentiality for expert bankruptcy advice and to see if filing bankruptcy in Massachusetts is right for you.

We can almost always come up with a solution to your financial problem. We have filed over 10,000 cases in the past 26 years and there are very few scenarios that we have not seen. The law firm Bucacci & Simonian is well known for their hard work, diligence, creativity and problem solving abilities. The law firm Bucacci & Simonian are the bankruptcy attorneys other attorneys come to with difficult cases. Call today to see what we can do for you and what options are available. Many are embarrassed about their financial problems and the situation regarding  bankruptcy. This is simply not true and many famous people have had to file for bankruptcy to get a fresh start.

Why Call Bucacci & Simonian When Considering Bankruptcy Filing :

We are known as one of the best bankruptcy attorneys in Southeastern Massachusetts serving the Bristol County and Plymouth County areas. Please inquire with anyone as to our reputation. Reputation is everything and we are very proud of ours. We have received numerous awards from various agencies and courts including the Bankruptcy Court in Boston, Massachusetts.

Using our knowledge and skill we have had several clients complete their five year Chapter 13 bankruptcy plans where they own their home FREE & CLEAR OF MORTGAGES. We understand how important it is to save clients’ homes from foreclosure, keep their cars from being repossessed and stop creditors from suing them and attaching their wages or attempting to seize their assets. This can be stopped almost instantly and we make every effort to be very available to your clients and can accommodate emergency situations. One of our important cases involved saving a client’s multi-family home.

What to Avoid When Filing Bankruptcy :

Do not attempt to file for bankruptcy on your own. You can make your situation much, much worse. If the bankruptcy petition is not correct you could lose your home, your car or possessions or you could be asked to file a different kind of bankruptcy where you have to make monthly payments when it could have been avoided. If you are not properly represented a bankruptcy trustee may foreclose on your house, allow your car to be repossessed, seize a tax refund or other assets. You could file under the wrong chapter, apply the wrong exemptions, fail to file all of the necessary forms or not understand the significance of important forms.

Protect Yourself:

Considering Bankruptcy Undecided or Unsure What To Do ? Call us today for a free and complete bankruptcy consultation. We can protect you from your creditors and protect your home, cars, jewelry and other assets. Creditors and collection lawyers have a job to do and it may seem that they are heartless and will take anything they can from you. They are represented and you should be too. Call us today. The Federal Bankruptcy Court suggests that seeking the advice of a qualified bankruptcy attorney is strongly recommended.