Can Bankruptcy Stop a Car Repossession in Arkansas?

Falling behind on car payments can create a lot of stress, especially when you depend on your vehicle to get to work, take care of your family, or handle everyday responsibilities. At ARlaw Partners, one of the first questions we ask potential clients who are considering filing for bankruptcy is whether they are

dealing with any garnishments, repossessions, or foreclosures. We ask this because, in many cases, filing for bankruptcy can stop or delay these collection actions.

When a bankruptcy case is filed, an automatic stay generally goes into effect. The automatic stay can prevent creditors from taking certain collection actions, including repossessing property. However, filing bankruptcy does not automatically mean you get to keep your vehicle permanently. What happens to your car depends on your circumstances, the type of bankruptcy you file, and whether you can meet the requirements of your bankruptcy case and vehicle loan.

What Is the Automatic Stay?

The automatic stay is one of the immediate protections that comes with filing bankruptcy. It generally prevents creditors from continuing collection efforts against you or your property while the stay is in effect.

For someone who is behind on a car loan, this can be especially important. A bankruptcy filing may stop a lender from moving forward with a repossession after the case is filed.

The automatic stay generally takes effect when the bankruptcy petition is filed and does not require a separate court order.

Can Chapter 13 Bankruptcy Stop a Car Repossession?

Chapter 13 bankruptcy can be particularly useful for individuals who have regular income and want to keep their vehicle while addressing their outstanding debts.

Chapter 13 allows a person to propose a repayment plan, generally lasting three to five years. The plan can provide a way to address certain debts over time while the debtor remains protected by the bankruptcy process.

If you are behind on your vehicle payments, filing Chapter 13 may stop a pending repossession and give you an opportunity to address the past-due amount through your bankruptcy plan. However, you will generally still need to make the required payments going forward. Filing bankruptcy does not eliminate the obligation to comply with the terms of an applicable repayment plan or other requirements involving the vehicle.

What If My Car Has Already Been Repossessed?

The timing of a bankruptcy filing can be extremely important. If your vehicle has already been repossessed, bankruptcy may still provide options, but the situation can be more complicated than when a repossession has not yet occurred.

Whether you can recover a repossessed vehicle depends on the specific circumstances of the case, including the status of the repossession and the applicable bankruptcy rules. Because these situations can move quickly, it is important to speak with a bankruptcy attorney as soon as possible if your vehicle has already been taken.

Can the Lender Take My Car After I File Bankruptcy?

The automatic stay provides important protection, but it is not necessarily permanent.

A creditor with an interest in your vehicle may be able to ask the bankruptcy court for permission to proceed against the vehicle by requesting relief from the automatic stay.

Bankruptcy courts in Arkansas regularly handle motions involving relief from the automatic stay. For that reason, filing bankruptcy does not guarantee that you will be able to keep your vehicle. You must still comply with the requirements of your bankruptcy case and address your vehicle loan appropriately.

What Happens to My Car Loan in Bankruptcy?

A vehicle loan is generally a secured debt, meaning the lender has an interest in the vehicle that secures the loan. Bankruptcy may provide protection from collection actions, but it does not necessarily erase the lender's rights in the vehicle.

Depending on the type of bankruptcy and the circumstances of your case, you may have different options for dealing with your vehicle loan. The best option can depend on factors such as:

• How far behind you are on your payments

• The current value of your vehicle

• The amount you still owe on the loan

• Your income and ability to make payments

• Whether the vehicle is necessary for your work or daily life

• Whether you have previously filed for bankruptcy

Don't Wait Until Your Car Is Repossessed

If you are already behind on your car payments or have received notice that your vehicle may be repossessed, waiting may make your situation more difficult.

Bankruptcy can provide important protections, but the timing of a filing can matter. The automatic stay generally begins when the bankruptcy petition is filed, so understanding your options before a repossession occurs may give you more opportunities to protect your vehicle. If you are struggling with car payments and are concerned about repossession, an Arkansas bankruptcy attorney can review your situation and explain what options may be available to you.

Do you have questions about bankruptcy and car repossession in Arkansas? Call ARlaw Partners today to discuss your options.