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Use Chapter 13 bankruptcy to stop vehicle repossession

As the Federal Trade Commission points out, both Chapter 7 and Chapter 13 bankruptcy will put a stop to creditors trying to collect on debts. Both can also stop vehicle repossession. It is important for debtors in Illinois to understand how the Chapter 13 process will work when dealing with either the threat of repossession or following the seizure of a vehicle.

In the first scenario, a debtor has perhaps fallen behind on making car payments. Initially, experts advise that people try to work with their creditors to develop a plan for satisfying payment terms. For example, someone could negotiate an interest rate or request more time to get the money.

When that does not work and other financial circumstances merit it, filing bankruptcy may be the answer. Doing so creates an automatic stay, which will prevent the lender from seizing the car. In a Chapter 13 bankruptcy, the debtor puts together a repayment plan that can address back payments on the car loan. Once the judge approves the plan, the lender cannot attempt to repossess the car as long as the debtor is making payments on time and in full.

In the second scenario, the lender has already seized the vehicle. If the debtor files for bankruptcy soon afterward, it may be possible to get the car back. The repayment plan structured during the bankruptcy would have to address the arrearage, and the payments will need to be made on time and in full.

Under Illinois law, a creditor is able to sell a repossessed vehicle. However, if the sale does not satisfy the debt owed, the lender may still come after the debtor for the remaining balance. Having all the information can help debtors make educated decisions regarding how to move forward.

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