Phoenix, AZ -- (SBWIRE) -- 12/30/2013 -- Due to unfortunate fiscal reversals of fortune, many people are now looking at possible bankruptcy and car repossession and not knowing how they affect each other. Credit-yogi.com is here to clear up their confusion by providing more information about the subject, including:

- Chapter 7
- Chapter 13
- Automatic Stay
- Which Process does More Harm?

Chapter 7 Bankruptcy

When a person files Chapter 7 bankruptcy, car repossession may be averted. Chapter 7 is a form of bankruptcy that liquidates a person’s belongings to pay off creditors. However, due to the automatic stay (to be discussed further on) his car may not be one of those assets. In some cases, the individual can reaffirm the loan, meaning he agrees – again – to make payments on the auto loan. This action cannot be taken, though, until after the bankruptcy filing has occurred.

Chapter 13 & Car Repossession

When there’s a question of bankruptcy and car repossession, Chapter 13 bankruptcy can help in two situations. If the vehicle was repossessed before one filed for bankruptcy, Chapter 13 can get it back. One must make a reasonable repayment plan that includes money for past due fees and costs, and be able to continue making his payments, but he can retrieve his auto by doing this. If bankruptcy has already been filed, the lender cannot legally pursue one for repayment of the balance of the loan, so no repossession is possible.

Automatic Stay

The automatic stay is the strongest resource that comes with filing for bankruptcy. Car repossession cannot occur while the stay is in effect, and the creditor cannot come after an individual without the court’s express permission. The bankruptcy filing will prevent the lender from repossessing and selling the vehicle under both Chapter 7 and Chapter 13. While the stay is in effect, one should take steps to work something out that enables him to keep his car, such as an acceptable repayment plan that addresses both the current balance and the arrearage due.

Bankruptcy or Car Repossession: Which is Worse?

If one has a choice between bankruptcy and car repossession, he should choose having his vehicle repossessed. While this does damage his credit score, it only stays on his credit file for 7 years. If he files for bankruptcy, the damage is far worse, as it stays with him for up to 10 years. While his credit has been harmed by the bankruptcy, this doesn’t mean he’ll never recover from it; it just takes time to prove oneself worthy of a second chance.

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