Can A Chapter 7 Or A Chapter 13 Stop Repossession?
Yes, a Chapter 7 or 13 can stop a repossession. Because the automatic stay, which is federal law, prohibits any kind of collection action (e.g., repossession, foreclosure, etc.) all of those things stop. All of the notifications in the bankruptcy court happen by United States mail. Therefore, there is going to be a day, two, or three before those notices reach the creditors. For example, if your car is at risk of repossession and we file your case on Friday, the court mails the notices and over the weekend your car was repossessed. Once that notice reaches the creditor, we can actually get that car back into your possession, and they no longer have grounds for repossession.
If you file for chapter 7, you would have an extra two to three months to work out the payments to bring the auto loan current. In chapter 13, very similar to the mortgage payments we discussed in Is It Too Late To Stop A Foreclosure By The Time Someone Receives A Foreclosure Notice?, you could actually bring your car payments current over the next three to five years, if that is what you determine would work better for you.
Will I Have To Make All Of The Back Payments To Keep Possession Of My Home?
The short answer is yes, you will have to make back payments. If you are in default, which means you are behind on your mortgage, or your car payments, you have to bring those payments current; in a chapter 13, you have to bring them current over the life of your chapter 13-repayment plan, or in a 7, you have three months with the chapter 7 processes. At some point, you are going to have to bring that current before you have discharged your debt. Now the lender still has their lien rights, because you cannot discharge the lien rights, you can discharge the debt, but not the lien. Therefore, your credit cards, which are considered unsecured debt, that all is discharged. When you buy a car, you are signing two documents.
You are signing a note, which is unsecured debt, and signing a security agreement, which grants the lender a lien. When you file chapter 7, you are discharging the unsecured debt, but they still have the lien rights. Therefore, because the security agreement mirrors the note, essentially you still owe them the amount due on the loan. Over the three months of your chapter 7 case, if you can save up, and work it out with them, or do a payment plan, that is an option. Otherwise if you cannot, once your chapter 7 case is discharged, then they would still have their lien rights, and the repossession risk would renew. There would be a new risk of repossession, unless you are able to work out something with the auto lender.
That is why chapter 13 oftentimes is a great opportunity for people, because you can take three to five years to pay off the amount you’re behind. In a chapter 13, we can do what is called the “cram down” as well. This is where if we can show the court that the value of the vehicle is worth less than the balance of the auto loan, then we can cram down the amount that you actually have to pay on the loan, to the value of the car. The rest of the auto loan, the difference between the value of the car to the full amount of the loan is treated as unsecured debt, which can get paid just pennies on the dollar.
In chapter 13, you do not necessarily have to pay one hundred percent of your unsecured debt. You only have to pay what you can afford to pay on that unsecured debt, over the next three to five years. Therefore, while you have to pay the back the secured portion of the loan in full, there is potential that you could actually cram down the rest of the car loan, and end up owning the car free and clear at the end of your plan, by paying less than the amount that you had originally agreed upon.
Can Filing For A Chapter 7 or A Chapter 13 Stop The Garnishment Of My Wages?
Yes, absolutely, filing for either chapter can stop a garnishment. That is a huge benefit for many of our clients. This is a big reason why people need to file for bankruptcy protection. They are being served with the garnishment exemption notice and a copy is sent to their employer. Under the law, if someone has a judgment against you, the employer has to garnish your wages up to twenty-five percent of the net income in seventy-day cycles, unless one of the exemptions under state law applies to you.
Those exemptions are things like, you receive some kind of assistance based on need, or you make less than $290 a week. However, if those exemptions do not apply to you, then by law, your employer has to garnish your wages, and send that money over to the judgment creditor. When you file either chapter 7 or chapter 13, the federal law requires that all collection activities are stayed. This automatically prevents any more garnishment of wages. You can actually stop a garnishment from beginning if your case is filed in time. One extra benefit you have with bankruptcy, is that if you have been getting garnished before your bankruptcy is filed, not only do you stop the garnishment on the date we file your case, but if the circumstances are right, we can claw back some of those garnished funds and get the money returned to you.
I have had clients, who are being garnished, and we file their case, we stop the garnishment, and then they get a check back for the garnished amount that was more than what they paid for their attorney’s fees on their bankruptcy. It is almost as if they made money on their bankruptcy, but there are certain criteria you must meet in order to be able to do that. The benefits of stopping the garnishment, and discharging that debt, are a huge benefit for many people.
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