Once a California resident has made the decision to file for bankruptcy, a new set of worries often comes into play. Virtually no one plans to need bankruptcy protection, which is why even the smartest and most successful individuals are often confused about the process. Many worry that they will lose their car during the bankruptcy proceeding, especially in cases in which repossession has already begun before the Chapter 7 bankruptcy has been filed.
Drivers should rest assured that bankruptcy does not mean giving up one’s car or truck. In fact, filing for Chapter 7 bankruptcy will give borrowers an immediate automatic stay against such collection efforts. If a repossession is in the works, it will be stopped at the time of filing.
However, this does not mean that one’s car loan will be discharged through the bankruptcy process. Auto loans are a form of secured debt, and are not eligible for discharge under bankruptcy law. Borrowers will still be responsible for paying the loan if they wish to retain the vehicle. The good news, however, is that lenders are usually willing to work with borrowers to get the loan payments caught up.
One way to aid this process is to take the first step in contacting the auto loan issuer and telling them that a Chapter 7 bankruptcy has been filed. Be prepared to discuss ways in which the loan can be brought back into good standing, and also know that it is possible to renegotiate the terms of the loan in some cases. Once the lender is aware that you intend to retain the vehicle and make good on outstanding payments, collections efforts will end and it is entirely possible to keep the vehicle. California drivers can stay on the road as they work toward rebuilding their financial health.
Source: Fox Business, “Can Lender Repossess My Car in Bankruptcy?” Tara Baukus Mello, Feb. 1, 2013