How Long Can I Keep My Car If I Surrender It in Bankruptcy?

While the Bankruptcy Code gives the debtor many options to retain a personal vehicle and continue paying a lender, sometimes it makes more sense to just walk away. In those cases, the debtor wants to know how long he or she has before the bank takes the vehicle. The first consideration in addressing this issue is recognizing that the automatic stay protects a Chapter 7 debtor from any collection action. Until the creditor is otherwise authorized, it cannot take the vehicle during a bankruptcy case.

The Bankruptcy Code specifically authorizes two times when a debtor loses its automatic stay protection for secured collateral. Each Chapter 7 debtor is required to file a statement of intention with the court which announces the intent to surrender, redeem or reaffirm (or in some cases “ride through”) property secured by a lien. If the debtor fails to file a statement of intention within 30 days after filing the bankruptcy case (or by the date of the section 341 meeting of creditors, which ever is earlier), the automatic stay is lifted.

The automatic stay also terminates for secured property if the debtor fails to follow-thru with his intention to surrender, redeem, or reaffirm within 30 days after the first date set for the section 341 creditors’ meeting. Note that just because the automatic stay is lifted and the collateral is no longer property of the bankruptcy estate does not mean that a creditor can immediately repossess the collateral. The debtor must still be in default under the terms of the contract/loan agreement before the collateral can be repossessed.

Finally, the automatic stay is terminated when the debtor receives a bankruptcy discharge. In this case the debtor’s personally liability is discharged, but still has possession of the secured collateral. If the debtor is in default for not making payments on the loan, the creditor can immediately repossess the vehicle.

The best advice is to surrender your vehicle back to the bank shortly after your bankruptcy filing. The reason is that you are responsible to safeguard the vehicle, which means insurance, maintenance, and otherwise protecting the vehicle from harm or damage. Damage to the vehicle after you file bankruptcy could expose you to liability that is not included in your bankruptcy discharge.

Surrendering property in bankruptcy is usually a simple matter. Your attorney and the bank coordinate a time and place, and you drop off the car. In some cases the lender may send a person or tow truck to get the car. Nearly always the debtor is given advanced notice. If you have specific questions about how a surrender will take place in your case, speak to your bankruptcy attorney.

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