December 15, 2019

Chapter 13 Dismissed – Will I Lose My Car?

I received an order saying my chapter 13 Bankruptcy case was being dismissed because it has been over 5 years plus no payments have been made in 6 mos. I lost my job of 7 years around may, 2007. About 1 year prior I had surgery on my knees and couldnt work for about 5 weeks per knee surgery. I did get behind in my payments during this period, but i did not realize that they would dismiss my case because it was over 5 years.

I paid faithfully until these events happenend in my life. I’M a single mother of 2 children and barely make end meat……My question is, now that my bankruptcy has been dismissed I want to know can they come take my car(which i still owe, not sure how much)or will theycontact me and give me the oppurtunity to make arrangements to pay it off? That was the only secured debtor I had on my bankruptcy. Please give me your advise, I cant afford another attorney.

–Melanie

Jonathan Ginsberg responds:  Melanie, you may have yourself a big problem.  When a Chapter 13 case is dismissed prior to discharge, the protection of the automatic stay disappears and your creditors can pursue all available state remedies available to them.  In a Chapter 13, the plan often changes the monthly payment to secured creditors like a car lender.  So, for example, if your car payment was $450 per month pre-bankruptcy, and your Chapter 13 trustee paid the lender $300 per month, there is a $150 per month delinquency that is building.  If your case goes through to discharge, no problem.  But when your case is dismissed the lender will recalculate what you owe based on the contract rate.  This may put you hundreds or thousands of dollars behind.

I would suggest that you get on the phone and try to negotiate a payment plan with the lender.  If they won’t cooperate you may need to seek Chapter 13 protection again.  There are many capable bankruptcy lawyers in the Atlanta area who will file your case for the filing fee only – with no up front payment.  Another option – file a Chapter 7 and redeem the property using financing offered by a lender who provides Section 522 funding.

Do I Have to Give Back the Car I am Financing if I File a Chapter 7?

I have a question about the blog in Nov,2006.  You said that filing bankruptcy can stop car repossion .  But after you file chapter 7 do you get to keep the car and the debt is discharged or you can keep the car only if you promise to make payments on tht vehicle.  Because I have been told the only way you can keep the car when filing chapter 7 is if you promise to make payments and you do not include it in your chapter 7 bankruptcy.  I was told if you owe on the vehicle and place it in your chapter 7 bankruptcy you have to give the car back. Could you give me some insight.
–Fana

Jonathan Ginsberg responds:  Fana, the minute you file a bankruptcy, all creditor action stops because of something called the "automatic stay."   There are a few exceptions to the automatic stay (i.e. multiple filings, child support debt, and a few other limited categories), but as a rule, all creditor action stops the minute you file.

Chapter 7 is primarily designed to get rid of unsecured debts like credit cards and medical bills.  In a Chapter 7, secured debts must be either reaffirmed or the collateral must be surrendered to the secured creditor.

Automobile loans are considered secured debts because the vehicle you purchased serves as security for the loan.  If you want to keep your vehicle in a Chapter 7, you must reaffirm it.  Reaffirmation of a vehicle loan is voluntary on the part of the secured creditor.  Generally, most car lenders will reaffirm if:

you are current with your payments

you have enough income to pay for the reaffirmed debt in your budget

your are able to shelter (exempt) your equity, if any, as part of your Chapter 7 petition

If the creditor refuses to reaffirm your choices are to surrender the vehicle or to convert to Chapter 13 where you can try to force a repayment down the lender’s throat.

If you do nothing – do not reaffirm and do not state any intention, the Bankruptcy Code will presume that your intention was to surrender and after the bankruptcy is over, the secured lender can repossess the vehicle.  Note that in this situation you would have no personal liability for a repossession deficiency – the Chapter 7 discharge serves to wipe out your personal liability.  However, the lien (in rem jurisdiction) that encumbers the vehicle remains and survives the bankruptcy.

So, if you are financing a vehicle and you file Chapter 7, there is a good chance that you can keep your vehicle if you qualify for a reaffirmation.

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