Many people find themselves in a situation where they have fallen behind on car payments. That can quickly lead to unpleasant consequences, such as vehicle repossession, which could damage your credit and leave you without transportation.
One way to go about this is to file a Chapter 13 bankruptcy petition in California. That will immediately trigger an automatic stay, which in turn stops repossession.
In this article, we will explore how Chapter 13 works, how it can protect your vehicle, and what appropriate steps to take.
How Vehicle Repossession Works in California
In California, lenders can repossess a car as soon as you default. Often, that happens without advance notice and can happen as long as they don’t “breach the peace” (for example, they wouldn’t break into a locked garage). Once they take the car, lenders can sell it at auction and pursue a deficiency balance – that is the difference between the sale price and the loan price.
Repossession can leave a long-lasting mark on your credit report, and if the lender sues for deficiency, it can lead to wage garnishment. Even though under California law you have limited time to redeem or reinstate the loan, that usually will require a large lump-sum payment, and that is something many people can’t afford.
The Power of the Chapter 13 Automatic Stay
When you file a Chapter 13 petition, that creates an automatic stay under the U.S. Bankruptcy Code, which:
- Stops repossession immediately (even if the tow truck has already been sent by the lender!).
- Halts collection calls, wage garnishments, and deficiency lawsuits.
In a case where the lender has already repossessed your car, but hasn’t sold it yet, the stay can require them to return it to you. Having this legal protection is important – it gives you breathing room to reorganize your finances.
How Chapter 13 Helps You Keep Your Car
In simple terms, Chapter 13 bankruptcy is a court-approved repayment plan which lasts between three to five years. Here is how it can save your vehicle:
- “Cure and maintain”: Until you resume regular payments, you will pay the arrears through the plan.
- Interest rate reduction (“cramdown”): If you bought your vehicle more than 910 days ago, you may be able to reduce the loan balance to the vehicle’s current market value and lower the interest rate.
- Extended repayment: The remaining car payments can be stretched out over the life of the plan, which often lowers the monthly amount.
By the time you reach the end of the plan, you will be current on your loan and will continue owning the car without any looming threats of repossession.
Important Considerations and Eligibility
Chapter 13 is available provided you meet the following criteria:
- You must have a regular income.
- You must stay within federal debt limits for secured and unsecured debts.
- You must make ongoing, regular payments – both your car payment plan, and sometimes, the court orders direct car payments.
If you miss payments, this will allow the lender to ask the court to lift the automatic stay. In turn, that would let repossession move forward. That is why it’s essential to consult an experienced bankruptcy attorney, who will work with you and create a plan which you can realistically maintain.
Protect Your Car – And Your Future
In case you’re facing vehicle repossession, Chapter 13 bankruptcy is your strongest tool. By reacting promptly to the situation and filing the petition, you can stop the repossession process, rearrange car loan payments, and protect your transportation and credit report.
We understand that this process seems daunting at first. That is where Scott Mitchell Law can offer you guidance and help. We are experienced bankruptcy attorneys who are dedicated to safeguarding our clients and their property – your transportation independence is our priority.
Our seasoned attorneys have helped many Californians use Chapter 13 to regain financial stability and save their vehicles. Contact us today for a consultation, and let’s explore your options – we are here to help.