With Car Repossessions on the Rise, Chapter 13 Protection Can Be Vital
The U.S. is witnessing a drastic surge in vehicle repossessions, with rates reaching levels unseen since the aftermath of the 2008 financial crisis. Repossessions in 2024 were up 23 percent compared to the prior year, which is also 14 percent higher than the 2019 pre-pandemic levels. As purchase prices and borrowing costs have risen substantially, many consumers now find themselves unable to keep up with car payments, making repossession an increasingly common reality.
Fortunately, a large number of consumers can block repossession using a Chapter 13 bankruptcy. Also known as the “wage earner’s plan,” it is designed for individuals with steady income who need time to reorganize their debts. For many, a vehicle is essential to maintaining employment. Losing a car can set off a spiral of financial hardship. Filing for Chapter 13 bankruptcy can provide vital relief.
One of the principal advantages of Chapter 13 is the automatic stay — a powerful legal protection that goes into effect the moment you file your bankruptcy petition. The stay immediately halts all collection activities, including vehicle repossession. That means your lender cannot take further action to recover your car while the stay is in effect. If your vehicle was repossessed shortly before you filed, you may be able to get it back by promptly proposing a feasible repayment plan through the bankruptcy court.
Under Chapter 13, borrowers can spread out missed car payments over a three-to-five year period. Instead of having to pay all arrears immediately to reclaim your vehicle, you can repay the overdue amount gradually, making it more likely you’ll be able to keep your car. The plan also combines your debts into a structured repayment schedule tailored to your income and reasonable living expenses.
Chapter 13 can help in other ways. You may be able to get a loan modification, lowering your interest rate to make payments more affordable. Another powerful option is the “cramdown.” If you owe more on your car than it is currently worth, and the loan is more than 910 days old, Chapter 13 allows you to reduce the principal balance to the car’s actual value, with the remainder treated as unsecured debt.
Finally, Chapter 13 allows you to use federal or state exemptions to protect the equity in your car. If your equity is fully exempt, you won’t have to make extra payments to keep it.
Note that you must remain current on your Chapter 13 plan payments, as missing payments may allow your lender to ask the court to lift the automatic stay and resume repossession. An experienced Chapter 13 bankruptcy attorney can help you fashion a plan that can provide the time, protection and structure needed to keep your car and rebuild financial stability.
The Law Offices of Michael Jay Berger in Beverly Hills, California has wide experience guiding wage earners through the Chapter 13 process. Call 310-271-6223 or contact us online to schedule a consultation.
