You can avoid repossession by filing for Chapter 13 bankruptcy because an automatic stay goes into effect. This means your lender can’t come after you for your vehicle and take it.

However, filing for a Chapter 13 bankruptcy to avoid a repo isn’t always the best decision. If you’re looking for other options to avoid repossession, and/or want to see what your options are for an auto loan during a Chapter 13 bankruptcy, keep reading.

Options to Avoid Repossession without Filing for Bankruptcy

Depending on your situation, you may not be able to avoid a repossession without filing for bankruptcy. Filing for bankruptcy, however, should be a last resort option for avoiding repossession, since you may have a number of other avenues available that could prevent a repossession.

What are your choices? Generally, a lender may offer one or more of these four options:

  1. Can You Avoid Repossession by Filing for a Chapter 13 Bankruptcy?Refinance – If your credit score has improved and you’ve been consistent with the payments, you may qualify for refinancing. When you refinance, you can lower the monthly payment by extending the loan term, or by qualifying for a lower interest rate.
  2. Modify the loan – You may be able to do a loan modification where the lender adjusts the monthly payment, loan term, and/or the interest rate.
  3. Change payment due dates – If your lender allows this, they may be able to change the payment due date if you need to pay on a specific day to keep up with them.
  4. Deferment – Deferring a payment means the lender allows you to miss a payment or two, but tacks them on at the end of the loan term.

Your Car Loan during a Chapter 13 Bankruptcy

If none of the options above are offered to you and you’ve decided that filing for bankruptcy is the best course of action, you should know that the automatic stay in place during your bankruptcy may not last long.

If the stay doesn’t last, you have three options to choose from:

  1. Surrender your car – If you simply can’t keep up with the payments, you can surrender your vehicle to your lender. Be aware that this is considered a voluntary repossession, and it gets listed on your credit reports as such.
  2. Pay what you owe – If you’re able to make up the back payments through your repayment plan, you can keep your car and avoid repossession.
  3. Cramdown the loan – A cramdown is when you reduce the loan balance to your vehicle’s current value. This is only offered in a Chapter 13 bankruptcy, and in order to cramdown, your loan must be more than two and a half years old. When you cramdown, any amount over the car’s current value becomes unsecured debt, and is included or wiped out with your other unsecured debts.

The Bottom Line

Filing a Chapter 13 bankruptcy is one way to avoid repossession, but the process can be tedious and long – lasting three or five years. We recommend that you reach out to your lender first to see if they can help you avoid repossession without having to file bankruptcy. You may be surprised by what they can offer.

If it’s too late and you’ve filed for bankruptcy and need a vehicle, we want to help. At Drivers Lane, we match car buyers to local dealerships that know how to get people in unique credit situations financed. Start the process today by completing our auto loan request form online.