Have defaulted on your car loan? Do you think you won’t be able to repay it? Then the best way out is to surrender your car to your lender, usually the bank. It will repossess the car and realize money by re-selling it and discharge the entire debt in the bankruptcy. However, for this to happen, the Statement of Intention in Chapter 7 bankruptcy should state that you are surrendering your vehicle. Doing so will erase the entire debt when the bankruptcy is discharged.
But, you know it, and we all know it that the value of a car depreciates by leaps and bounds. It may so happen that the bank refuses to repossess car you have offered.
Why is it so? Because its worth is significantly less than what you owe to them. And the bank may also withhold the title of your car, unless you pay them what you owe.
Bank won’t repossess the car
When you purchase a new car from the loan you have taken from a bank, and its value depreciates quickly. A time may come when you feel that paying off this loan makes no financial sense since the balance you owe to the lender is more than the value of the car.
In such a situation, you merely try to palm off the car to the bank by filing for Chapter 7. However, the bank won’t repossess car too, since it makes little financial sense for them. Take into account the cost of repossession, repairing, retaining and reselling – the total cost for repossession may be more than the car’s fair market value.
Moreover, filing Chapter 7 bankruptcy will not release the lien on your car. Why is it so? The lien is attached to the vehicle and Chapter 7 releases you from your responsibility to pay it.
What happens if the lender refuses to repossess the vehicle?
So the bank won’t take the car back and refuses to release the title? Then it is arm-twisting you into repaying the car loan. However, you on your part can inform the lender through your repossession lawyer that it is a violation on your discharge, if it refuses to release the title or if the repo car never picked up.
Your perseverance in ‘chasing’ the bank may compel it to provide a clear title to you, rather than face legal action and also get saddled with your attorney’s fees. However, a favourable outcome of going legal is not guaranteed. You may have to file the motion or file to reopen your bankruptcy too.
What you need to if bank refuses to repossess car?
You can act in the following ways:
#1 Use the court’s decision in a previous case
You can always quote a court’s decision delivered in the northeastern US to compel your bankruptcy court to rule in your favor. The case pertains to a lender’s refusal to release the lien to the debtor to enable him to junk the car that was worthless. This despite the debtor’s willingness to surrender the car. The lender did so to coerce the debtor to pay the balance of the loan on the worthless car in full. The bankruptcy court took notice of it and ruled in debtor’s favor.
#2 Redeem for $1
Another option is to get your attorney to file a motion to redeem the vehicle for $1.
Bankruptcy laws allow you to keep a vehicle by paying the lender the actual value of the car in one lump sum payment. In court’s parlance, this is a ‘redemption’. This puts the lender in a bind.
If the lender fights the $1 redemption value, this means he admits that the car is not worthless, but it is he who refuses to repossess the vehicle. If he accepts $1, he should then release the lien. This turns it into a winning situation for the debtor and forces repossession of vehicle after discharge.
#3 Make garage/towing company assert a lien
If you belong to any of the US states that have laws that empowers a repair garage/towing company to assert a lien on the vehicle for the work done, you can very well take your car for a repair and not pay. This will prompt the repair shop to assert a mechanics lien and sell your car after notifying the lender.
The choice with the lender is either
- Pay for the repairs or
- Let the garage/towing company to tow it to a junkyard.
The junkyard pays for the salvage, the garage/towing company can recap their charges, and you get rid of your car without getting the title.
- Can my car be repossessed in Chapter 7?
The lender can repossess your car if he gets the court’s permission.
- Can you go on private property to repo a car?
The repo person cannot enter a private property to repossess a vehicle.
- Do I still have to pay if my car gets repossessed?
Yes, if your car is repossessed and auctioned and the money received in auctioning is less than what you owed on loan.
- Can my car be repossessed during Chapter 13?
No, the lender cannot repossess your car during Chapter 13.
In case the lender bank refuses to repossess car for which you defaulted on the loan, you have plenty of options open to you. However, threatening legal action against the lender for violation of the court’s order is an often used option by the debtor.
David Galler is an experienced bankruptcy attorney based in Atlanta, Georgia. For the last 29 years he has filed over 10,000 bankruptcy cases. He has a FIVE STAR client rating on Avvo, Kudzu.com, RateABiz.com, and Google+, among other sites. Over 99% of all Chapter 7 cases he filed have been discharged.