What happens if I miss a car payment during Chapter 13?

What happens if you miss a car payment during Chapter 13? The lender could ask the bankruptcy court for permission to proceed with a repossession! Don’t worry though, that doesn’t happen immediately. We can normally fix this for you. We’re going to talk through the process when you miss a car payment so you can get back on track before it’s too late.

When is my first car payment due?

Unless you elected to pay your car loan through your Chapter 13 plan, your payment date will not be changed. Your payment is due when it was always due. There are no changes to the loan agreement unless you are paying the loan through the plan.

What’s the process if I miss a car payment during Chapter 13?

By filing a Chapter 13 bankruptcy, you get the protection of the “automatic stay”. This stops all creditors from proceeding in any collection efforts against you. If there was a pending repossession, it is stopped automatically. In order for a creditor to take any action against you during a Chapter 13 bankruptcy, that creditor would need to request permission from the bankruptcy court. We call this a Motion for Relief from the Automatic Stay or simply a Motion for Relief.

If a creditor has good cause, the bankruptcy court will grant a Motion for Relief. Generally, when it comes to car loans, this comes up when you miss car payments. The creditor will argue that by not paying the car payments, you are harming the creditor and they need to proceed with repossession. That puts you in a bad position if you miss your car payments. There are normally ways that you can fix it, but it’s very important to avoid getting behind in the first place!

Before we talk about the solutions, let’s talk about the process. It’s important to recognize that every bankruptcy district and every bankruptcy judge handles the process slightly differently. This is not intended to be a substitute for contacting your Chapter 13 attorney. In fact, that should be your first call if you miss a payment. Instead, this is an overview of the general process that applies when you miss car payments during a Chapter 13.

What is a Motion for Relief from Stay?

In order for a creditor to take any action against you during a Chapter 13 bankruptcy, that creditor would need to request permission from the bankruptcy court. We call this a Motion for Relief from the Automatic Stay or simply a Motion for Relief. If you miss car payments, the lender can file a Motion for Relief from Stay. If this motion is granted, you would no longer have the protection of the bankruptcy and the lender can proceed with a repossession. For those who want to keep their car, you can see why you need to get ahead of this.

Most lenders will not file a Motion for Relief for one missed payment. So if you can catch up on that missed payment before your next payment is due, you should ordinarily be ok. If you get two months behind, many lenders will file the motion. If you get three months behind, almost all lenders will file the motion. This is not a license to miss payments. Every payment you miss makes the problem harder to solve. You need to be proactive and speak with your Chapter 13 attorney as soon as you know this will be an issue.

When a creditor files a Motion for Relief, the court schedules a hearing. If you do not resolve the issue with the creditor prior to the hearing, the judge will have to decide if the lender should be allowed to proceed with repossession. You may have to testify at this hearing if the matter is not resolved.

If a Motion for Relief is filed in your case, it is always best to resolve the Motion ahead of time.

What do I do if I know I’m going to miss a car payment during Chapter 13?

Contact your lawyer immediately. In most cases, your lawyer will not be notified when you miss a car payment during a Chapter 13. If you don’t call,  your lawyer would have no way of knowing you’re having an issue. Many times people wait until the Motion for Relief is filed. This can be a problem because the further you get into your issue, the harder it is to fix.

If you are able to catch up on your payments, you should. If you cannot, be honest with your lawyer. Many times our clients tell us they can catch up when they cannot. We need to know these things. If you can’t catch up on the payments, we may have other solutions, but I need to know that.

What do I do if I missed a car payment during Chapter 13?

Contact your lawyer immediately. Don’t wait until it’s too late!

There are a number of ways that we can fix a missed mortgage payment. Whether these options are available to you depends on a number of factors:

1. Your specific bankruptcy district;
2. How far behind are you?;
3. Your income and ability to repay;
4. Whether you want to keep the car;
5. Is this the first time you missed a payment?;
6. Would a replacement vehicle work? Do you need this car or do you just need a car?;

The fact that there are so many factors emphasizes why calling your lawyer is so important. There are a number of different things to consider when coming up with a solution.

How can I fix my Chapter 13 if I missed a mortgage payment?

Here are some of the things we have done to solve the issue:

1. Catch up on your payments: The easiest option in most cases is to simply catch up with your missed payments. This works best when the creditor hasn’t filed a Motion for Relief. Unfortunately, many creditors will not withdraw the Motion voluntarily. If you wait until the Motion is filed to catch up, you may have to attend a hearing.
2. Enter into a repayment agreement with the creditor: Some creditors will allow you to catch up on the missed payments over time. For example, you may enter into a 90 day repayment or 6 month repayment. The problem is that you have to make your current payments on top of the catch-up payments. This can be expensive and difficult for many people.
3. Amend your plan: Amending your Chapter 13 plan is one of the more common ways to deal with missed payments. By amending your plan, we can restructure the entire plan and make changes as needed. Sometimes, we can elect to pay the loan through the Chapter 13 plan. This may make it easier for you to make the payments.
4. Get a new car: If your Chapter 13 plan is confirmed, we can have you request a replacement vehicle loan. We work with companies who specialize in lending to people in bankruptcy. Sometimes, it’s easier (and better) to just get a new car.
5. Convert to Chapter 7:  If your car is underwater (i.e. you owe more than it’s worth), you may have other tools available to you in a Chapter 7. You may be eligible to “redeem” your vehicle in a Chapter 7. This may save you money.