Most people cannot afford to purchase a vehicle with their own savings. The sale prices of new and used vehicles have increased substantially in recent years. People rely on financing provided by a bank or a dealership to acquire a vehicle.
That typically means that the vehicle itself serves as collateral for the loan. If the vehicle’s owner falls behind on their payments, they are at risk of the lender attempting to repossess the vehicle. Repossession can worsen the challenges of an individual struggling financially. They may not be able to make it to work consistently or handle key matters for their families without a vehicle.
Some people act to protect themselves after falling behind on a vehicle loan. They may file for personal bankruptcy. In some cases, lenders may proceed with a repossession anyway. Is it legal for a lender to repossess a vehicle after the owner of a vehicle has filed for bankruptcy?
Repossession during bankruptcy is rare
Typically, those filing for bankruptcy receive an automatic stay granted by the courts. They have protection from collection activity until they complete the bankruptcy process or the courts dismiss their case. That stay usually takes effect on the same day that someone files.
The decision to repossess a vehicle during an active bankruptcy could constitute a violation of the automatic stay granted by the courts. It is often possible for people to reclaim possession of the vehicle if they take the right steps.
That being said, lenders can sometimes proceed with repossession in specific scenarios. If an individual has repeatedly filed for bankruptcy, the automatic stay may only offer temporary protection. Even during a first bankruptcy filing, lenders can ask for the courts to grant them an exception.
They initiate an adversary proceeding, and a judge can potentially lift the automatic stay for the plaintiff bringing that action. In other words, the bankruptcy proceeds as normal, but the lender that provided the vehicle loan has permission to repossess the vehicle or engage in other collection efforts.
Those who experience inappropriate repossession during bankruptcy may be able to regain access to the vehicle. Other times, they may be able to take legal action against the company that violated their automatic stay.
Reviewing the conduct of a lender and other details of their situation with a skilled legal team can help those dealing with an unfair repossession explore their options. The sooner that a party who has experienced a questionable repossession takes action, the better their chances of favorably resolving the situation.
