If you file for Chapter 7 or Chapter 13 bankruptcy, the automatic stay makes it illegal for car lenders to continue to contact you and collect debt. However, your lender may be able to repossess your car if they obtain court permission of lifting the automatic stay. The lender must prove that they are entitled to repossess the car because timely payments on the car were unable to be made. If your lender obtains court permission, you have the option of fighting this action in a hearing.
One way to avoid having your car repossessed is if you can avoid falling behind on car payments. If you can find a way to catch up on payments and/or stay current, it is unlikely that your car will be repossessed.
Another possible way of avoiding repossession is negotiating with your lender a way to keep your car. If you’re behind on payments, try working out a new payment plan to keep your car.
You could also avoid repossession by redeeming your car for its fair market value. To do this, a motion with the court needs to be filed with a lump sum payment. Redeeming your car enables you to own it separately from bankruptcy.
In a Chapter 13 bankruptcy, your car payment will be made as part of your Plan payment. As long as you continue to pay the Trustee, you will not fall behind, and your car will not be repossessed.