One of the fundamental principles of bankruptcy is that secured debts are either paid in full or the secured creditor may seek to foreclose on the property and acquire ownership. In other words, when you obtain a car loan, you use the vehicle as collateral. If you fail to make your car payments, the lender may attempt to reclaim the vehicle. Insolvency has no effect on the procedure. Instead, bankruptcy validates the process. You pay, you own the vehicle. If you do not pay, you will forfeit the vehicle.
Insolvency can delay the repossession of a vehicle. When someone files for bankruptcy, the majority of civil actions, such as car repossession, are """"automatically stayed"""" (halted). This means that a lender cannot repossess a vehicle. Instead, the lender must wait and, at the appropriate time, file a motion requesting permission from the bankruptcy court to proceed with the repossession. In most cases, absent compelling reasons to the contrary, the bankruptcy court will allow the lender to proceed with the vehicle repossession. Nevertheless, the repossession will have been delayed while the lender awaited court approval to proceed.
Chapter 7 bankruptcy does not prevent the repossession of a vehicle, but it can help you keep it in other ways. The primary benefit of a Chapter 7 bankruptcy is that it can discharge unsecured debts (such as credit cards, medical expenses, and personal loans), so you do not have to pay them. By not having to pay the unsecured obligations, you may have more money to pay your car payments and maintain ownership of your vehicle.
You should be aware that if your only debt is a car loan, declaring bankruptcy is probably not worthwhile. The expenses, including the filing fee, and disadvantages (negative information on your credit report) will likely outweigh the advantages of keeping your vehicle.
This is commonplace knowledge. Consult an attorney licensed in your state if you require specific information or have any queries of any kind.
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