Using a bankruptcy to have a repossessed vehicle returned prior to 2021
Until quite recently, debtors who commenced bankruptcy proceedings enjoyed the benefits of the automatic stay immediately, barring creditors from commencing or continuing any actions to enforce claims, including repossession of cars. If a car had been repossessed pre-bankruptcy, as long as they remained in the possession or control of the creditor, it had to be returned to the debtor, and a refusal to do so constituted a violation of the automatic stay on the basis that the creditor was exercising control over the car.
The new 2021 law on vehicle repossession
Supreme Court Decision: Chicago v. Fulton
According to the Supreme Court (SCOTUS), that is no longer the case. The Court held that the automatic stay only applies to affirmative acts that disturb the status quo as of the filing date. In other words, merely retaining a debtor’s previously repossessed car after the filing of a bankruptcy case does not violate the automatic stay.
In Chicago v. Fulton, SCOTUS considered whether Chicago officials had violated the automatic stay by refusing to return impounded cars to Chapter 13 debtors. The debtors asserted, and all lower courts had agreed, that the city’s refusals to return the impounded cars violated Bankruptcy Code Section 362(a)(2)’s prohibition of “any act to obtain possession of property of the estate or of property from the estate or to exercise control over property of the estate.”
SCOTUS disagreed in a decision issued on January 14, 2021. By first examining the plain language of Section 362(a)(2), noted that plain reading of the terms “stay,” “act,” and “exercise control” indicated that only affirmative acts that disturb the status quo were prohibited, not a failure to act. Even worse, SCOTUS next held that debtors’ only remedy is to file a separate proceeding against the creditor under Section 542 of the Bankruptcy Code to compel the turnover of the repossessed car. Gone is the quick (and cheap) remedy of demanding return of the car or threatening the creditor with the powerful sanction of contempt for failing to do so.
How to avoid repossession
Since the protections of bankruptcy commence only when the case is filed, debtors who want to retain their vehicles should prioritize those payments and possibly ignore credit cards, unsecured loans, medical debts, and other debts that will be discharged.
If lacking funds sufficient to even make the car payment, i.e., you are unemployed, awaiting receipt of benefits or stimulus funds, making the repo man’s job a little harder may be wise. Generally, repossession without first obtaining a court order can be carried out only if there is no breach of the peace. Breaking into a locked garage is a breach of peace.
Don’t leave the car in the driveway or parked on the street. Ever wanted to take your cousins fancy car for a spin for a few days? If so, perhaps a short-term swap of the cars that puts it out of town or in an unfamiliar garage might buy you a few days. But remember, if you have a newer car with all of the newfangled technology and GPS systems, many of them cut both ways and not only tell you where you are, but also tells the lender where the car is.
The best way to keep your car in your hands for getting to work and for other essential travel is to keep it out of the hands of the lender and the repo man. Either find a way to make the payment, even if it means failing to make other payments, or work with your attorney to expedite the filing of your bankruptcy, perhaps as an emergency case if necessary.
Avoiding repossession is only a temporary solution. Eventually, they will take your vehicle and with this new position taken by the Supreme Court, it might be extremely difficult, if not impossible, to have the vehicle returned.
Do not wait to file a bankruptcy
Often bankruptcy cases are not filed until after a “wake up call”. The emotional weight of overwhelming debt can only be ignored for so long until something needs to be done. If you are having difficulty with your debt payments and do not have a clear plan to stay current on your vehicle, you have your bankruptcy options. A Chapter 7 will allow you to some protection of the automatic stay which will give you a bit of breathing room to sort out your financial affairs. A Chapter 13 can allow you to reorganize your secured debts so that you can retain the vehicle in a variety of ways, including paying the loan through a Chapter 13 plan to cap the interest rate and spread payments over up to 60 months.
