One of the first concerns by potential bankruptcy clients is what happens to their car. Many assume that they will lose their car when filing a bankruptcy. Although there may be some uncertainty regarding this, most of our clients manage to keep their cars. Obviously, there are always situations which could change the outcome of any case.
THE DEBT IS DISCHARGED BUT NOT THE LIEN
The general rule is that bankruptcy only eliminates debts; it does not eliminate property interests. So when you get your bankruptcy discharge, your personal obligation to pay is gone but the lender still has a lien on your car.
On the day you file your case, a court order is issued in the form of a notice to all the creditors which contains what they call the AUTOMATIC STAY. What the creditors are required to stop is any and all efforts to collect any debt you may owe. You will probably be allowed some space if you are behind in your car payments; however, the creditor can bring a motion and ask to have the stay lifted but most of the time they won’t do that with a car. The automatic stay will expire on the day you receive your discharge – usually about 90 days after the date the case is filed.
In a Chapter 13, the discharge comes at the end of the payment plan… three years or five years after filing. Rather than wait, the lender will probably bring a motion to lift the stay after you have missed a few payments.
The discharge contains an injunction which prohibits the creditors from any effort to collect from you personally. This injunction permits the creditors to take action against any security in which they have a right. They can’t sue you but they can repo your car if you are behind in the payments. They could also repo your vehicle for not signing a reaffirmation agreement.
A REAFFIRMATION AGREEMENT is a contract that reinstates a debt as if the bankruptcy never happened. Sometimes they change the original terms so you must look the contract over closely. (This is another reason why it’s important to be represented by a qualified lawyer.) They have to be filed with the court before the date of discharge. They also have to be approved by the judge assigned to your case. If your lawyer will sign off on the agreement, the judge will probably not require a hearing before approving.
In the Chapter 7 cases, it is common for automobile lenders to insist that the filing of the Chapter 7 violates the loan contract; and that the debtor must either surrender the vehicle or reaffirm the debt.
If you had a Chapter 7 and you did not reaffirm and you are now discharged, the lender will tend to consider itself to be under a court order to not bother you in any way. Although they can now repo, they are still prohibited from trying to collect the debt. If you are behind in your car payments, you might not receive any warning letters or phone calls before seeing your car heading down the street on the back of a tow truck. You MUST stay up to date with your payments so this won’t happen.
In either Chapter 7 or Chapter 13 cases, when you owe a lot more than the car is worth, the time may come to surrender it to the lender.
If you have more questions or concerns about this and are considering if bankruptcy will help in your situation, don’t hesitate to contact us. The initial consult is FREE. Give us a call at 731.424.3315 or email me at Jerome@tennesseefirm.com.