Chapter 7 vs Chapter 13 Bankruptcy: Car Loan Solutions
Today’s YouTube video summary is based on a question from readers of my blog, Mandy and Rick. Unfortunately, they lost their jobs and fell behind on their car loan. They filed for Chapter 7 bankruptcy, hoping to keep their car. However, they soon learned that Chapter 7 wouldn’t protect their vehicle because they needed to catch up on payments. That is a common mistake because debtors read that the automatic stay will stop most lawsuits, but it’s only a temporary solution. To save their car, they will need to file for Chapter 13 bankruptcy.
The Automatic Stay Explained
Filing for bankruptcy triggers the “automatic stay” that usually stops creditors from taking action to collect most debts. In this case, that wasn’t going to help because the idea is be able to keep their car, not necessarily slow down the process as to when the car gets repossessed.
Why Chapter 7 Bankruptcy Didn’t Help
In Chapter 7 bankruptcy, the debtor’s nonexempt assets are sold to pay creditors. Since Mandy and Rick were behind on their car loan (which is a secured debt tied to the car), the creditor could ask the court to lift the automatic stay and repossess the vehicle. Chapter 7 is never a solution to keep an asset that is secured by a loan if the debtor has fallen behind on loan payments. So what’s the solution?
Chapter 13 Bankruptcy
Chapter 13 bankruptcy allows debtors to create a repayment plan to catch up on missed payments and keep their assets, including cars.
If Mandy and Rick can convert their case from Chapter 7 to Chapter 13 bankruptcy, they can bring their car loan payments current within the plan which is between 36-60 months.
What to Do if Chapter 7 Bankruptcy Was Filed?
If the lender is willing to work out a payment plan, the petition can be dismissed. However, if an agreement can’t be reached, then the Chapter 7 bankruptcy case can be converted to Chapter 13, which can only be done with court approval.
What You Need to Know
Chapter 7 bankruptcy doesn’t protect you from losing a car if you’re behind on payments. However, Chapter 13 bankruptcy allows you to create a repayment plan to keep your vehicle.
You can learn more about filing for bankruptcy and the bankruptcy petition via this link. Information on the bankruptcy court system, contact information for trustees, and your state’s exemptions can be found here. The federal bankruptcy exemptions are listed here. The latest version of the 341 Meeting of the Creditors can be found here.
Colleges and universities can purchase my bankruptcy law textbook directly from Routledge Publishing. Paralegals and students who are buying single copies can do so via Amazon Books. To access my YouTube channel, click this link. You can also listen to my podcast on Spotify.
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Please note that the information on this site does not constitute legal advice and should be considered for informational purposes only.
Updated on September 1, 2025.
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