Chicago Bankruptcy Question: Will Chapter 13 get my car back after it's been repossessed?

Chicago Bankruptcy Question of the Day: Will Chapter 13 get my car back after it's been repossessed?  Filing for Chapter 13 bankruptcy protection will usually allow for the recovery of a vehicle that has been repossessed, so long as the case is filed within a timely manner, notice is proper, the vehicle is insured, there have been no prior significant issues regarding the vehicle payments and the plan is prepared properly to adequately protect the vehicle finance company.

In Chicago, a vehicle finance company has the right to repossess a vehicle once you fall more than 30 days behind in the payments.  In most circumstances, they will not act unless you are more than 60 days past due, but not always.  Once a vehicle has been repossessed, the finance company must hold the vehicle for a period of twenty days.  After the twenty day period expires, they have the right to sell the vehicle, generally at an auction, apply the proceeds of the sale to the loan and then pursue you for the balance that remains (the "deficiency balance").

In order to recover the vehicle using Chapter 13 bankruptcy protection, your case must be filed before the vehicle is sold.  If the vehicle is properly sold prior to the filing, Chapter 13 will not allow you to recover the vehicle.  Notice must be given immediately upon filing to the finance company for the vehicle and, when possible, to the company that physically has the vehicle.  Once they receive notice, they are not permitted to sell the vehicle, even if they want to dispute the issue of returning it.  Upon filing for Chapter 13 bankruptcy in Chicago, you will be required to prove that there is full-coverage insurance on the vehicle with the finance company listed as the loss payee.  Failure to keep the vehicle insured will also keep the finance company from returning the vehicle. 

Once these things are done, then the finance company is generally required to return the vehicle.  The Seventh Circuit Court made this clear in their decision in Thompson v. General Motors Acceptance Corp., LLC, 566 F.3d 699 (7th Cir. 2009).  The Thompson case does allow for exceptions to this broad rule if there is a significant history of issues between the debtor and creditor, multiple prior repossessions, multiple prior failed Chapter 13 bankruptcy cases or other significant history.  When there is a dispute, which is relatively rare, these are decided on a case by case basis.  In the vast majority of cases, however, the vehicle is returned immediately.

Once the vehicle has been returned, you are not completely safe.  Your Chapter 13 plan of reorganization must have been drafted properly to fully protect the vehicle.  The auto finance company has a right to "adequate protection" payments in your Chapter 13 plan.  These are usually fixed monthly payments scheduled to be made by the Chapter 13 trustee to the finance company to protect the finance company against depreciation of the vehicle.  If there are not adequate protection payments included in the plan, or if they are insufficient to properly protect the creditor, then the auto finance company will have the right to remove the protection of the court and repossess the vehicle again.

Having the representation of an experienced Chicago Chapter 13 lawyer is crucial when it comes to recovering a vehicle after repossession.  You need an attorney who can file quickly, send the proper notices immediately upon filing and prepare a Chapter 13 plan that will be acceptable to the auto finance company.  If your vehicle has been repossessed and you are trying to recover it, call the experienced bankruptcy attorneys at Ledford & Wu for a free consultation.  Time is of the essence, so call today.

No Comments

Leave a comment
Comment Information

Need Help With A Specific Issue?