Repossessed items can be recovered in bankruptcy
Image source: Flickr User David Berkowitz
One of the most drastic measures a creditor will use is to take back an asset that serves as collateral for a loan. This includes vehicles, furniture or jewelry that you financed to pay for but then failed to meet your obligation. If you haven't been able to keep up with your payments and the creditor took back any of these items, you may be able to get them back from the creditor by filing bankruptcy – depending on the type of bankruptcy you file – and whether the property was seized or repossessed.
What's the difference between repossession and being seized?
Repossession is the term for when a creditor takes back an item that collateralized a loan. Collateral is a tangible item that serves as security on a loan. For a mortgage or home equity line of credit, the collateral is the home itself. On an auto loan, it's the vehicle. For furniture, it's the furniture itself and for jewelry, it's the ring, necklace or whatever bling you bought on credit. In contrast, an asset that has been seized is quite different. In this case, a lawsuit was filed over a debt (unrelated to the asset) and a judgment was issued by the court in the creditor's favor that allows them to take an asset that is owned free and clear to satisfy the debt.
Under what circumstances can you get back your asset?
Once you file your bankruptcy petition, depending on the chapter, you may be able to get the asset back. If a creditor has recently seized an asset through a court judgment, as soon as you file bankruptcy, they will have to return it and the debt associated with the judgment will be discharged and you'll be shed of it once and for all. This goes for a vehicle or any other item that are owned free and clear and were taken as a result of a court judgment by a standard creditor (IRS seizures are a totally different matter).
What happens to a repossessed vehicle during bankruptcy?
If you were making payments on your car and fell behind and your vehicle was repossessed, there are still some steps you can take to make it right via bankruptcy. For a Chapter 7 filing, you'll either have to catch up the past-due payments right away, make arrangements with the lender to make them up or negotiate with the lender to pay a lump sum to gain title to the vehicle. In Chapter 13, you will have the opportunity to make up your past due balance over your three to five year repayment plan and will get your vehicle back.
To find out if you can recover property that was seized or repossessed as a result of unpaid debt, contact the law offices of John T Orcutt to see how bankruptcy can help. The consultation is free and we can help you get a financial fresh start.