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Car repossession and bankruptcy

When District of Columbia residents are faced with unmanageable debt, many consider bankruptcy as an option. However, people are often concerned about whether they might lose their car to repossession during the bankruptcy.

Auto loan lenders have a security interest in the vehicle on which the debtor has a loan. If the person's car payments are current, it is unlikely that the lender will seek to enforce their interest. When someone files bankruptcy, an automatic stay against collection efforts, including repossessions, goes into effect. Lenders may request that the bankruptcy court allow them to repossess the vehicle, however, and such requests are often granted.

People who file for Chapter 7 bankruptcy will have a discharge of their unsecured debts upon a successful petition. Secured debts are not discharged, however. Conversely, Chapter 13 bankruptcy, which is a reorganization and repayment process, may allow the debtor a repayment period of three to five years during which the individual can catch up on the auto loan delinquency. Even if a person is delinquent on their car payment in a Chapter 7 bankruptcy, the debtor may be able to demonstrate to the bankruptcy court that he or she needs the vehicle in order to get to work. This type of request is sometimes granted.

People are sometimes overwhelmed by debt due to life circumstances. Bankruptcy can help provide the person relief from their situation through discharging the person's unsecured debts. In the event that the person is concerned about a secured creditor's interests, the property may still be able to be saved. In order to determine eligibility, the person may benefit by seeking a consultation with a bankruptcy attorney for an evaluation and advice.

Source: FOX Business, "Can Lender Repossess My Car in Bankruptcy?", Tara Baukus Mello, December 12, 2014

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