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Bankruptcy is an option for stopping a repossession before it turns into a real emergency. Of course, most people rely on their cars to survive. If many people who are behind on their car payments, the thought of going to work, shopping, transporting your children and running errands on public transportation is a nightmare. Even if that were possible, it would leave hardly any time for adequate rest.
A bankruptcy can stop that nightmare immediately. The automatic stay in bankruptcy prohibits repossessions as it does all debt collection. A bankruptcy can eliminate debt payments, lawsuits and garnishments to get your cash flow back on track.
In a Chapter 7, you may be able to catch up on a car loan and get your worry about repossession under control once other debt payments are eliminated. The Chapter 7 will stop the repossession for at least a month, probably longer. However, it is unlikely to help you more that a few months unless you can find a way to catch up on your car loan for good.
A Chapter 13 allows you to consolidate your car payment with other debt and pay it off in a manageable plan. As long as you keep your car fully insured and follow the Chapter 13 plan, the finance company can not repossess your car. If your car is repossessed before you file bankruptcy, you may be able to recover the car after filing a Chapter 13. There is also a chance the creditors will return the car in a Chapter 7 but that is more difficult.
Car finance companies will repossess a car unless you have fallen at least a month or two behind. You have some warning that the repossession is possible and it is best to plan ahead. Filing bankruptcy in a hurry makes the process more stressful and difficult to pay for. If your car is repossessed and you get it back after filing bankruptcy, you may find you no longer want it because it has been damaged in the repossession. Car finance companies are entitled to “self help”, meaning they can repossess the car wherever they can find it. They do not need a court order. If you need a little extra time to file a bankruptcy, you can keep your car out of sight for a while. Finance companies can not “disturb the peace” when making a repossession, so they are not supposed to enter a garage or trespass, though it happens.
Finance companies are not entitled to self help to repossess other items bought on installment contracts, such as furniture, electronics, and appliances. They need a court order to repossess these items and obtaining one is prohibitively expensive for most. The image you see on TV shows of a repo man showing up on your doorstep to repossess a couch is simply not accurate. After filing bankruptcy, it is easy to negotiate new terms for paying off these big-ticket items.