Once a bankruptcy case is filed, most creditors are instantly prohibited from continuing collection efforts against a bankruptcy debtor by the “automatic stay.” Car lenders are included in the list of creditors who, because of the automatic stay, may neither commence nor continue collection efforts against a bankruptcy debtor.
The automatic stay prevents a car loan lender from repossessing a motor vehicle in two different situations:
- When a lender has not repossessed a motor vehicle before the filing of the bankruptcy case; and
- When the lender has already repossessed a motor vehicle before the filing of the bankruptcy case.
If a car lender has not repossessed a vehicle and a bankruptcy case is later filed, the automatic stay prevents the lender from repossessing the car for the duration of the bankruptcy case. As long as a chapter 13 repayment plan addresses any payment arrearages on the loan, the lender may not repossess the vehicle.
If a car creditor repossesses the vehicle after a bankruptcy case is filed, it violates the automatic stay. Debtors may seek actual damages, punitive damages, attorney’s fees and costs when a creditor willfully violates the automatic stay. Of course, the act must be “willful.” In situations where a debtor may be late on payments, an experienced bankruptcy attorney will typically contact the creditor to make sure it is aware of the filing and takes no action to repossess the vehicle once the bankruptcy case is filed.
Chapter 13 bankruptcy debtors that wish to keep their motor vehicles must make “adequate protection” payments from the time of the filing of the bankruptcy case until the chapter 13 plan is confirmed or approved. These payments protect the car creditor from the depreciation of the vehicle during this preliminary time period.
Once a default occurs, while recovery for most unsecured debts requires creditors to file a lawsuit, secured debtors may utilize other remedies such as foreclosure and repossession of property. Filing a bankruptcy case may counter the actions of a creditor that utilizes either of the aforementioned remedies.
If you have purchased a home or automobile and are experiencing problems repaying the debt and are approaching default, call our Fort Lauderdale bankruptcy attorneys at 954-523-HELP (4357).