Stopping the repossession of a car or other vehicle is one of the most important uses of Chapter 13 Bankruptcy (or Debtors Court, as it is called here in the Birmingham, Alabama area). Once a Debtors Court case is filed, creditors are prohibited by federal law from repossessing your car, truck, motorcycle or any other type of vehicle.
Timing of the Filing
Prior to 1998, at least one Bankruptcy Judge in Birmingham ruled that if a Debtors Court case was filed within 10 days after repossession, then the creditor had to return the vehicle. That changed in 1998 when the United States Court of Appeals for the Eleventh Circuit in the case of In re Lewis held that a case must be filed before the repossession in order for an individual to keep his or her vehicle. So now it is critical that you file your Debtors Court case before the repossession.
You should contact my office once you miss a payment on your vehicle. Most financing agreements provide that a payment that is even one day late constitutes a default in the contract which triggers the creditor’s right to repossess your vehicle. Creditors do not always repossess vehicles after only one missed payment because that is not good for business. However, you have to be aware of that possibility once you miss a payment.
Self Help Repossession
Like most states, Alabama allows for what is called self help repossession. Self help repossession means that a creditor can repossess your vehicle without a court action (e.g., lawsuit). This usually involves a repo man coming to your home in the middle of the night and driving off in your vehicle (since the creditor has an extra set of keys). Alternatively, the repo man may come to your workplace and repossess your vehicle.
Consequences of Repossession
Once your vehicle has been repossessed, the creditor has the right to sell it at an automobile auction. These auctions generally result in low bids on vehicles. Alabama law gives the creditor the right to sue you for the difference of what was owed on the vehicle and what it brought at the auction (this is called a deficiency claim). The creditor will file a lawsuit which will invariably lead to the garnishment of your wages or bank account. The result is that you lose your vehicle and you still have to pay the deficiency claim.
The good news is that Debtors Court will stop this terrible chain of events.
If you would like to discuss Debtors Court or Bankruptcy options, please email me at greg@biddlefirm.com.