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Bankruptcy Law Blog

Thursday, March 19, 2020

Bankruptcy as a Repo Re-Do?

We often think of the United States Supreme Court as a court that only deals with politically divisive cases on things like abortion, elections, and the rights of criminals. But the highest court in the land is tasked with resolving disputes in all areas of the law. This year, it is taking up an important bankruptcy case. The Court will determine if property that has been repossessed must be returned if the debtor files for bankruptcy.

Do Creditors Ever Return Repossessed Property?

If you file for bankruptcy, your creditors will be prevented from foreclosing on your home and repossessing your car. If you file under Chapter 7 of the bankruptcy code, you will most likely give up these assets in order to get your debt free fresh start. If you file under Chapter 13 of the bankruptcy code, you can try to hold on to these assets by entering into a court-supervised repayment plan that gets you caught up on your payments and puts you in a position to thrive post-bankruptcy.

But what happens if your creditors have already repossessed your car? In Alabama, and a majority of other states, your lender is required to return your car to you if you file for Chapter 13 bankruptcy shortly after your vehicle is repossessed.

However, in some states, creditors are not required to return repossessed property when a debtor files for bankruptcy. This difference in the way debtors in different states are treated is why the Supreme Court agreed to hear a case on this issue. The Court will decide how the law is supposed to work and force all the bankruptcy courts across the country to treat debtors the same.

Hopefully, the Court will decide the way Alabama is doing things is how all states should be doing things so Chapter 13 can continue to help borrowers hold on to possessions being repossessed.

While we wait for the Supreme Court to issue its decision, we encourage anyone who has had a vehicle repossessed for nonpayment to contact an experienced bankruptcy attorney as soon as possible. The quicker you act, the more likely you will be able to get your car back.

Getting Your Car Back Is One Thing, Keeping It Is Another

Say you do get your repossessed car back, will you be able to keep it? It depends. You will need to include your car payments in your Chapter 13 repayment plan, and pay any arrearage.

Since most people would not be in this position if they had the money they needed to make payments in the first place, this presents a problem. However, the Chapter 13 process may give you some breathing room.

Filing for bankruptcy under Chapter 13 allows debtors to “cramdown” debts on physical items like cars. A cramdown reduces the outstanding debt to the current market value of the item. For example, if you owe $12,000 on your car loan, but your car is now worth just $9,000, the bankruptcy court can cramdown your loan so you only owe $9,000.

You may also be able to reduce the interest rate on your loan, or agree to pay less each month over a longer period of time.

An experienced bankruptcy attorney can help you figure out what your options are, and guide you through whatever path you choose. Contact our office today if you are in need of assistance.


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Padgett and Robertson assist clients with Bankruptcy, Personal Bankruptcy, Consumer Bankruptcy, Chapter 7 Bankruptcy, Chapter 13 Bankruptcy and The New Bankruptcy Law in Mobile, Alabama and throughout southern Alabama. Alabama State Bar Association Regulations require the following: "No representation is made that the quality of the legal services to be performed is greater than the quality of legal services performed by other lawyers." 11 U.S.C. 528 of the U.S. Bankruptcy Code requires the following: "We are a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy Code.”



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Alabama State Bar Association Regulations require the following: "No representation is made that the quality of the legal services to be performed is greater than the quality of legal services performed by other lawyers." 11 U.S.C. 528 of the U.S. Bankruptcy Code requires the following: "We are a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy Code.”