Chapter 13 is sometimes referred to as “reorganization” bankruptcy. That is because the core feature of Chapter 13 bankruptcy is a reorganization plan, which will last from three to five years depending on your disposable income, the nature of your debts, and other factors. Generally speaking, California debtors who file for Chapter 13 are able to keep their vehicles, provided they continue to make full and timely car payments throughout the duration of their reorganization plan. However, there are also some situations where a filer may be in danger of vehicle repossession. Our Roseville bankruptcy lawyers explain what happens to your car when you file for Chapter 13 bankruptcy in California.
Chapter 13 Car Repossession
If you live in the Roseville, Sacramento, or Folsom area and are worried about losing your vehicle to repossession, you should contact a Sacramento Chapter 13 attorney immediately for legal guidance. You may be able to prevent your car from being repossessed if you file for Chapter 13 bankruptcy, but it is vital to act quickly. While it may be possible to get your car back if it has already been repossessed, the simpler course of action is to prevent repossession altogether.
On the other hand, there can also be strategic advantages to delaying a bankruptcy filing under certain circumstances, which is one of the reasons it is so crucial to consult with a knowledgeable bankruptcy attorney prior to filing a petition in U.S. Bankruptcy Court for the Eastern District of California (which has jurisdiction over Placer and Sacramento Counties, among others). An experienced Chapter 13 lawyer will be able to review your debts, assets, disposable income, and financial objectives to help you make an informed decision about the drawbacks and benefits of filing immediately versus filing at a later point in time.
What Happens to Your Car Payments in Chapter 13?
Getting back to the subject of car payments under Chapter 13 bankruptcy, you will generally be able to keep your vehicle provided you comply with the terms of your reorganization plan, which must be approved by the bankruptcy court. In the period between filing for bankruptcy and getting court approval of your plan, it is very important that you continue to make payments. Car payments made after filing but prior to plan approval, which are known as “adequate protection” payments, are meant to compensate for the depreciation of the vehicle while you waiting for the court’s approval. In most but not all cases, filers should expect adequate protection payments to be equivalent to their normal car payments.
Once your plan has been approved by the bankruptcy court, you will continue to make payments toward the vehicle. This is known as “secured debt,” because it is secured by collateral (the vehicle). Secured debts generally must be paid off in full in Chapter 13. The benefit of filing is that you will be granted time to catch up on late or missed payments, which are known as “arrearages,” enabling you to keep your vehicle. While it is sometimes possible to keep a vehicle in Chapter 7 bankruptcy by using exemptions, Chapter 13 is generally the better option for eligible filers who do not wish to surrender their property.
Not only does the Chapter 13 reorganization plan give the petitioner time to catch up on missed payments, but a court order known as the “automatic stay” takes effect automatically (hence the name) upon filing for bankruptcy, and generally prevents creditors from collecting debts while the case is underway. However, there is an exception in cases where the creditor is granted court approval to lift (remove) the automatic stay after filing a document known as a “motion for relief from the automatic stay.” If you fall behind on your auto loan payments, the creditor may file this motion in an effort to repossess your vehicle. The protective powers of the automatic stay can also be diminished by multiple bankruptcy filings, so be sure to consult with an attorney about this potential issue if you have filed for bankruptcy in the past.
There is additional point that is important to mention: Chapter 13 bankruptcy regulations require that all of the debtor’s disposable income – that is, any income remaining after Chapter 13 payments and reasonable living expenses – goes toward his or her reorganization plan. If you own an expensive luxury vehicle, the bankruptcy court might determine that your car payments are not actually a reasonable living expense, and require you to claim a lower expense instead.
CA Bankruptcy Lawyers Serving Roseville, Sacramento, and Folsom
Are you a California resident who is worried about losing your vehicle to repossession or your home to foreclosure? Are you struggling to pay off car loans or other debts that have become overly burdensome and difficult to manage, including medical debt and credit card debt? You may be able to solve all of these problems by declaring bankruptcy with assistance from a Folsom Chapter 13 lawyer. To speak confidentially about your legal options in a free bankruptcy consultation, contact the attorneys of The Bankruptcy Group at (800) 920-5351 today.