Stopping Auto Repossessions & Foreclosure By Filing Chapter 13 Bankruptcy

Chapter 13 bankruptcy can be an effective tool to stop auto repossession and foreclosure by restructuring your debts and creating a repayment plan. Here’s how it works and the steps involved:

Stopping Auto Repossession

1. Automatic Stay

1. • Immediate Protection: When you file for Chapter 13 bankruptcy, an automatic stay goes into effect immediately. This court order halts most collection activities, including auto repossession.
   • Notifying the Creditor: Ensure your auto lender is notified of your bankruptcy filing and the automatic stay to prevent them from repossessing your vehicle.

2. Repayment Plan

1. • Catch Up on Arrears: Chapter 13 allows you to include past-due car payments in your repayment plan. You can spread these arrears over the life of the plan (typically 3-5 years).
   • Lower Payments: In some cases, you might be able to reduce your car payments through your Chapter 13 plan by extending the loan term or reducing the interest rate.
   • Cramdown: If the value of your car is less than what you owe and you’ve owned it for more than 910 days, you might be able to use a cramdown to reduce the principal balance to the car’s current market value. The remaining balance is treated as unsecured debt, which might be discharged.

3. Redemption: Although not specific to Chapter 13, you might have the option to redeem your vehicle by paying its current market value in a lump sum, often funded through a new loan.

Stopping Foreclosure

1. Automatic Stay

1. • Immediate Halt to Foreclosure: Like with auto repossession, the automatic stay stops foreclosure proceedings immediately upon filing for Chapter 13 bankruptcy.
   • Notifying the Lender: Your mortgage lender must be notified of your bankruptcy filing to halt foreclosure actions.

2. Repayment Plan

1. • Cure Mortgage Arrears: You can include your past-due mortgage payments in your Chapter 13 repayment plan. This allows you to catch up on missed payments over the course of the plan.
   • Maintaining Current Payments: In addition to catching up on arrears, you must continue making your regular mortgage payments outside of the Chapter 13 plan.

3. Lien Stripping

1. • Second Mortgages and Junior Liens: If your home’s value is less than the amount owed on your first mortgage, Chapter 13 might allow you to strip off second mortgages or junior liens. These liens are treated as unsecured debt, which may be discharged upon completing the repayment plan.

Filing for Chapter 13 Bankruptcy

1. Consult with a Bankruptcy Attorney

1. • Legal Advice: Seek advice from a bankruptcy attorney to understand your options and the specifics of your case. An attorney can help you draft and file the necessary paperwork.
   • Eligibility: Ensure you meet the eligibility requirements for Chapter 13, including having a regular income and being within the debt limits.

2. Prepare Your Documents

1. • Gather Financial Information: Collect documents such as income statements, tax returns, a list of assets and liabilities, and details of your debts.
   • Credit Counseling: Complete a credit counseling course from an approved agency within 180 days before filing.

3. File the Petition

1. • Bankruptcy Petition: File your Chapter 13 bankruptcy petition with the bankruptcy court. This includes your repayment plan, schedules of assets and liabilities, and other required documents.

4. Meeting of Creditors

1. • 341 Meeting: Attend the 341 meeting of creditors, where you’ll answer questions about your financial situation and repayment plan under oath. Your creditors can also attend and ask questions.

5. Plan Confirmation

1. • Court Approval: Your repayment plan must be reviewed and approved by the bankruptcy court. Creditors can object, but the court has the final say.
   • Adherence to the Plan: Make your plan payments on time and in full. Failure to do so can result in dismissal of your bankruptcy case and resumption of repossession or foreclosure actions.

Completion of the Plan

1. Discharge of Debts

1. • Remaining Debt: After successfully completing your repayment plan, any remaining unsecured debts may be discharged.
   • Lien Release: For secured debts like your mortgage, continuing regular payments may be necessary even after the plan’s completion to retain the property.

2. Financial Stability

1. • Post-Bankruptcy: Focus on rebuilding your credit and maintaining financial stability. Implement good budgeting and saving practices to avoid future financial distress.

By filing for Chapter 13 bankruptcy and adhering to your repayment plan, you can effectively stop auto repossession and foreclosure, giving you the opportunity to catch up on missed payments and regain financial stability.

 

Stop Auto Repossession