01 Aug What Happens To A Repossessed Car In Bankruptcy?
Chapter 7 and Chapter 13 offer differing treatment of cars that have been repossessed before bankruptcy.
In chapter 7 you are faced with three options. One, you can ask the creditor to reaffirm the loan. This option requires Court approval and requires you to immediately pay in full the delinquency and to continue making payment according to the terms of the contract. A creditor can refuse to permit reaffirmation or can offer you better terms. Two, you can petition the Court for a redemption price on the vehicle. If the car is worth less than you owe, and if you can immediately pay the actual value, the Court may permit you to redeem the car. A variation of redemption involves obtaining an alternate source of financing to pay the redemption amount. Third, you can surrender the vehicle to the creditor, in which case, the creditor will sell the car. The chapter 7 discharge will prevent collection of a deficiency from you.
In chapter 13 you have five options. One, if the car loan is more than 910 days old, you can cram down a car claim to the present value of the car and pay that amount over three to five years. Two, if the car loan is less than 910 days old, with certain exceptions, you must pay the loan amount at an interest rate that approximates prime plus up to three points, in conformity with In re Till. Third, you can pay the original contract loan payment according to the contract rate of interest. Fourth, you can surrender the vehicle to the creditor and discharge the entire balance without further payment. A fifth variation applies in some jurisdictions, including the entire Seventh Circuit, where your surrender requires you to treat the after sale loan deficiency as an unsecured claim.
Andy Miofsky, Esq.
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