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Using bankruptcy to protect personal vehicles from repossession

For many Wisconsin citizens, debt can seem impossible to overcome, which is why federal law allows people whose debts exceed their assets to get a fresh start by filing for bankruptcy. There are two types of personal bankruptcy protection: Chapter 7 and Chapter 13. Each type has different benefits based on a person's specific financial situation. With a Chapter 13 bankruptcy, the consumer is allowed to set up a repayment plan whereby some debts may be paid off over a period of three to five years.

When a person files for Chapter 7 bankruptcy, there is an automatic stay that prohibits a creditor from taking action to collect against the person. Even with secured debt such as a vehicle loan, the lender must obtain permission from the court before they can repossess the vehicle. This provision in the law may give consumers some relief if they are having trouble meeting their monthly payments.

There is an exception that allows creditors to go to court and ask the bankruptcy judge to allow them to initiate collection proceedings. The judges often grant permission when a consumer is behind on his or her payments prior to filing for bankruptcy.

In some cases, a person who has filed for bankruptcy can make arrangements with the lender to prevent a vehicle from being repossessed. It could be possible to re-negotiate the terms of the original loan, become current on the loan by making up the missed payments or settle the loan for the fair market value of the car. An experienced personal bankruptcy attorney may be able to help a consumer contemplating bankruptcy determine the best option for obtaining relief from crushing debt.

Source: Fox Business, "Can Lender Repossess My Car in Bankruptcy?," Tara Baukus Mello, Feb. 1, 2013

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