Can Bankruptcy Help You Retrieve Your Car After It Has Been Repossessed?
It is not uncommon for Sasser Law Firm to receive a phone call and the first words after “Hello,” are, “My car was just repossessed. Can I get it back if I file bankruptcy?”
Of course, each situation can be different, so the answer requires more information, but generally, the standard answer has been that a person can retrieve their vehicle from repossession if filing a Chapter 13 bankruptcy case.
With proof of insurance and a Chapter 13 plan providing for payment in full of the creditor’s claim, most vehicle creditors have been responsive to arrange for the car to be retrieved without a lot of hassle.
On January 14, 2021, the Supreme Court of the United States issued an opinion that may make retrieving a repossessed vehicle a little more difficult or time-consuming. The case is titled, City of Chicago v. Fulton, 592 U.S. ___, 141 S. Ct. 585 (2021). The case had to do with the City of Chicago’s practice of impounding vehicles for the failure of the owners to pay fines for motor vehicle infractions.
The car owners in the case filed Chapter 13 bankruptcy cases and demanded that the City of Chicago release the vehicles back to them immediately. The fines would be paid to the City of Chicago through the Chapter 13 plan over the course of time.
When the City of Chicago retained the vehicles and did not immediately release them back to their owners, the Chapter 13 debtors wanted the City of Chicago sanctioned for violating the automatic stay.
When someone files a bankruptcy case, federal bankruptcy law imposes an automatic stay halting the efforts of most creditors to collect on debts outside of the bankruptcy context. With only a few exceptions, creditors are prohibited from “any act . . . to exercise control over property” of the bankruptcy estate.
The question in the Fulton case was whether the City of Chicago violated that prohibition in bankruptcy law by keeping the vehicles after the bankruptcy cases were filed.
The Supreme Court made a very narrow ruling stating, “We hold only that mere retention of estate property [(in this case the vehicles)] after the filing of a bankruptcy petition does not violate § 362(a)(3) of the Bankruptcy Code.” Thus, all the Supreme Court ruled is that when a creditor merely retains a person’s vehicle after a bankruptcy case is filed, that alone is not a violation of the automatic stay under bankruptcy law and the creditor cannot be sanctioned for that.
However, what happens next in that scenario when a creditor merely retains the property? Most creditors want to be paid the money owed to them and not just keep repossessed property sitting around.
The car cannot be sold at auction because clearly that would violate the automatic stay under bankruptcy law. The car owner needs the car back to use it to get to work and for other transportation needs. The Supreme Court did not answer those questions.
Even after the Fulton case, bankruptcy law has provisions in it that still enable a Chapter 13 debtor to demand possession of a vehicle back. Specifically, section 542(a) requires a creditor to turn over property if the property has value or benefit to the bankruptcy estate and if the property could be useful; section 1303 gives the debtor in a Chapter 13 case the rights and powers of a trustee to demand that property be turned over; and section 1306(b) states that a debtor is to remain in possession of property of the bankruptcy estate. Combining these sections together means that there is still a good basis for a Chapter 13 debtor to demand that a repossessed vehicle be released back to him or her after filing the case.
The Supreme Court’s decision in Fulton does not mean that the repossessed car cannot be retrieved, but it does mean that the process might take a little longer than before. A bankruptcy court may require that the debtor file a motion or adversary proceeding and obtain a court order requiring the creditor to release the car back to the debtor.
Of course, some debtors will opt to not pursue a return of the car and will simply seek to discharge the debt obligation through a Chapter 7 bankruptcy case. That can be a good option, as well, if the debtor can find other means for transportation and just needs a fresh start from the debt that is still owed after the repossessed car is sold.
The best approach is to file the Chapter 13 case before the car repossession occurs. Generally, if a person is about 60 days behind on the car payments then the lender may be seriously considering repossessing the vehicle. With some lenders, they are calling the tow truck to repossess the car with even less than a 60-day delinquency on payments.
The filing of the Chapter 13 case stops the threat of repossession and provides a person with a payment plan for keeping the vehicle. It is easier to protect a vehicle from being repossessed by filing a Chapter 13 bankruptcy case beforehand than seeking to retrieve the car after it has been repossessed.
Sasser Law Firm offers free consultations. If you are behind on your car payments, please give us a call to discuss whether filing a Chapter 13 case might be a good option for you to halt the threat of repossession and obtain the time you need to make reasonable payments for your vehicle.
A copy of the opinion in Fulton can be found here
For more than 20 years, the Sasser Law Firm has been helping individuals and business owners sort through financial hardships to see the light at the end of the tunnel. Our North Carolina bankruptcy attorneys are all board-certified specialists, which means we have passed a complex exam, undergone a thorough peer review, and continue to earn legal education credits in this ever-evolving area of law.