Filing a Chapter 7 case stops repossession of your vehicle temporarily. If you are getting another vehicle, that can be valuable time.
A week ago we went through a list of ways Chapter 7 buys you time with your vehicle lender. Included was that it “gains you some time to get another vehicle before surrendering your present one.” We’ll show you how this works.
Transitioning to Another Vehicle
The two different types of consumer bankruptcy give you a number of ways to keep a vehicle that you’re having a hard time making the payment on.
Chapter 7 stops a repossession if you’re behind on payments or insurance. It discharges all or most of your other debts so that you can better afford your vehicle payments. This can also help you afford insurance, vehicle repairs and maintenance, and the other costs of ownership. If you’re a little behind on payments it gives you a month or two to catch up.
Chapter 13 does most of these and more. If you’re behind on payments you get many months to catch up. You can fit that in with other urgent debts—such as child/spousal support and income taxes—on a flexible schedule. If you qualify for “cramdown” you can even lower your monthly payment and significantly reduce the total you pay for the vehicle before it’s yours free and clear.
But what if AFTER getting well informed about these options you still want to surrender your vehicle and get another one? Real life situations in which this might happen include:
- You’ve learned that the vehicle you’re paying for is a lemon, unreliable, and will cost too much to keep repaired.
- Your life circumstances have changed and you don’t want or need a vehicle that’s so expensive.
- You simply have a way to get another cheaper vehicle, and need to get out of your vehicle loan obligation.
Buying Time by Stopping a Repossession
If you behind on your vehicle loan at all, your vehicle is at risk of repossession. How fast your lender will repossess depends on its policies and on the history of your relationship. Usually you have to be a full month late, sometimes even two months. But you can’t assume this—it can happen whenever you are behind.
If you let the vehicle’s insurance lapse—even without being late on loan payments—that’s separate grounds for repossession. Lenders can be very aggressive about this, because they risk losing their entire collateral. And you are showing yourself to be irresponsible in their eyes.
In these situations your Chapter 7 bankruptcy filing will not buy you much time, but the time it buys could be extremely helpful. A repossession is often very, very disruptive. One minute you have your car or truck and the next it’s gone. You have no transportation to work and to everywhere else you need to go. Preventing that huge disruptive surprise is a big benefit.
Buying Time Even If You’re Current
Even if you’re not behind on vehicle loan payments or insurance, Chapter 7 gives you an orderly process for surrendering your vehicle.
It also gives you a chance to calmly consider whether you should or shouldn’t keep your vehicle and its debt. You sit down with a bankruptcy lawyer who has only one job: to help you decide what is best for you and your future. You look at what your budget will look like after filing the Chapter 7 case. You think about whether there’s room for that vehicle payment. You have a bit of time to figure out whether and how you could get ahold of replacement transportation.
Procedure and Timing
Whether you’re current or behind, how much time will filing Chapter 7 buy? Partly it depends on the aggressiveness of your lender, especially if you’re behind.
In every Chapter 7 case you have to specifically state what you intend to do with collateral on all secured debts. You do so with a document called a “Statement of Intention.” This is usually filed at the bankruptcy court along with the rest of your Chapter 7 documents. But for tactical or other reasons it can be filed later. The document itself states:
You must file this form with the court within 30 days after you file your bankruptcy petition or by the date set for the meeting of creditors, whichever is earlier, unless the court extends the time for cause. You must also send copies to the creditors and lessors you list on the form.
(See also Section 521(a)(2) of the U.S. Bankruptcy Code about this.)
On the Statement of Intention you declare, under penalty of perjury, your “intention about any property… that secures a debt… .” You declare whether you want surrender or retain the vehicle. If you want to retain it you say whether you want to redeem the vehicle or reaffirm the debt. (These two options are discussed in recent blog posts.)
Practically speaking you usually have to surrender your vehicle between about 30 and 45 days after your Chapter 7 filing. If your lender is unusually lax you may get a little more time than that.
The Surrender Itself
Arrangements for the surrender itself are made between your lawyer and the lender or its lawyer. The surrender is almost always done in a way that’s convenient to you. Usually you either drive the vehicle to an agreed location or give the keys to the lender whose representative picks up the vehicle from wherever you agree to leave it. This in infinitely better than a repossession.