Our cars are typically among the most important possessions that we own. After all, we use them to get to work, to school, to see friends, to enjoy shows, to escape from the city, or we might even need them as part of our employment. So when the risk of losing a car lingers over somebody’s head, they take it seriously.

The fear of losing their car has been more than enough to prevent people from filing for bankruptcy. The worst part of this is that they haven’t done the research to determine if they would be at risk of losing their car or not. Considering the benefits that filing for bankruptcy can bring, like being able to get a grip on your finances again, it is unfortunate that people are missing out on an opportunity that could offer them solutions to their problems.

That’s why we’re going to explore how vehicle repossession works with a Chapter 7 and Chapter 13 bankruptcy. This will give you a much better idea of what could happen to your vehicle when filing for bankruptcy if you have a vehicle loan. We will also look at the limitations placed on the “repo man,” as it’s important to be aware of your rights when it comes to repossession in Phoenix.

How Does Vehicle Repossession Work with a Chapter 7 Bankruptcy?

Before we answer that, let’s briefly make sure we understand what a Chapter 7 bankruptcy is.

A Chapter 7 bankruptcy is a way of getting an opportunity to get rid of all the unsecured debts attached to your name. This can give people the chance to recalibrate their finances to improve their life–basically to get a fresh start. However, it comes with some drawbacks, like how it may negatively impact your credit score and the possibility of losing some properties or possessions. An automatic stay order is put in place immediately when you file a Chapter 7 bankruptcy. This stay gives you at least some instant protection for your car, and that alone is better than if you hadn’t bothered filing for bankruptcy at all.

The automatic stay makes it so that lenders can’t just repossess your car. Instead, they have to look to the courts to get granted permission to repossess your vehicle. A lender needs to show the court that they have a lien allowing them to repossess your vehicle or that they will lose money if you don’t pay your loan payments. An attorney can help argue against these by providing receipts that show you made payment or by showing that the car has an equity cushion that would protect the lender from any losses.

A vehicle loan is a special kind of debt, in that it is secured by the value of the vehicle itself. In a Chapter 7 bankruptcy, secured debts can be handled in a variety of ways that are not available for most unsecured debts. For example, you can choose to surrender the car and discharge the entire debt (even if you are “upside down”), redeem the loan with a payment, seek a redemption loan to refinance the vehicle at its current market value, reaffirm your debt, or just continue to make your payments. Which option is right for you is a difficult decision, with many complicated implications.

Of course, if you stop making payments as part of a bankruptcy, or do so without seeking protection, you are eventually going to lose your car. What this ultimately means is that often the best choice of action is to move to protect your vehicle by consulting with an attorney prior to filing the bankruptcy. They can help you determine the best possible route to reduce the chances that you lose your vehicle.

How Does Vehicle Repossession Work with a Chapter 13 Bankruptcy?

A Chapter 13 bankruptcy is quite a bit different from a Chapter 7 bankruptcy. While a Chapter 7 bankruptcy focuses on the liquidation of assets to pay off debts, a Chapter 13 bankruptcy is more in line with a reorganization of your debt with a payment plan. This is typically good news for your car, as a Chapter 13 bankruptcy doesn’t require you to let go of assets and property to pay creditors. Instead, you create a repayment plan to the bankruptcy court to create a bi-weekly or monthly plan.

An automatic stay is put in place, just as with a Chapter 7 bankruptcy. However, it is harder for a creditor to repossess your car with a Chapter 13 bankruptcy. When you file for bankruptcy, no repossession action can be taken. If the Chapter 13 bankruptcy explicitly addresses the back payments on the car, then the lender may not repossess it during or after the bankruptcy as long as you stay current on your payments through the new payment plan. Other possible advantages to a Chapter 13 filing are the ability to lower your monthly payments, and you can sometimes even reduce the interest rate or “cram down” the amount of the secured debt to the current value of the car.

Working with an attorney is always the best way to ensure the maximum protection through this process. However, it’s worth noting that if your car was repossessed then you may actually be able to get it back through a Chapter 13. This isn’t always a guarantee, but it’s an option worth pursuing before you throw in the towel and accept the repossession action.

What Are the Limits on Repossessing a Car?

Unfortunately, there is a lot of shady business that goes on in the repossession field. It is legal for somebody to repossess a car that is on private property, for example. This may feel like a violation, and that is more than understandable. Thankfully, the legal system has a few limits of what can be done to repossess a car and this helps to prevent people from encountering the worst behaviors.

State laws clearly and strictly prohibit lenders from breaching the peace while repossessing a car. This means that repo men are not allowed to break into a locked garage, threaten you, use violence against you, or damage your personal property. Nor can they repossess a car that is not used as collateral for a car loan. Likewise, a company is not allowed to repossess the car unless you were in default. Missing a payment is typically not enough, you would have to miss a payment and fail to make it until after the grace period has ended.

How Do I Protect My Car?

You can protect your car by working with a bankruptcy attorney. In addition, an attorney can also help you to get your car back should it have been unlawfully repossessed.

The best information you can get on how to protect your car will be based on the specifics of your unique circumstances. Meeting with an attorney for a free consultation will allow you to provide those details so you can get back a plan of action that best suits your unique needs.