Can I stop making my car payment prior to bankruptcy?

Generally, no. If a person desires to keep a car, generally it will be necessary to keep making the payments. Self-help repossession can occur very quickly, and very soon after a default (missed payment) on the loan contract.

In chapter 7 bankruptcy, having a car payment that is current and not in default is often helpful. Reaffirmations, where a secured debt is voluntarily excluded from the bankruptcy, are routinely used for auto loans. If the loan is in default, the debtor loses some important options in the reaffirmation process, and repossession following bankruptcy becomes more likely. In short, if a debtor does everything they are required to in the auto loan contract (including making payments) and in the reaffirmation process, they are best positioned to keep the car.

Car loan payments in chapter 13 are more complex. The typical chapter 13 plan, the end result of a successful plan will be the debtor keeps the car and no further obligation exists on the car loan. One consequence of this fact is that the chapter 13 process works essentially the same for car loans that are current and car loans with a missed payment. In a chapter 13 plan, a car loan is ordinarily paid off over time either in the amount owed on the date the case was filed or in the amount the car is worth (see also our post on which rule applies). In a plan paying the balance owed, a payment made prior to bankruptcy will slightly decrease the plan payment. In a plan paying the value of the car, a payment made prior to bankruptcy might no effect whatsoever on the chapter 13 plan payment.

For an individual going into chapter 13 who is actively paying secured debts, including car loans, when and how to pay those secured loans is an important item to discuss with your bankruptcy attorney. Careful timing can save a car payment and ease cash flow going into chapter 13. Poor timing can lead to repossession and the stress of an expedited filing designed to reverse the repossession.

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