Car Repossessions on the Rise: Impact on Bankruptcy Proceedings

The latest figures for car repossessions are out, and it isn’t good! Let’s dig deep into car repossessions, car loans, and bankruptcy.

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With newly released data from Cox Automotive. Car repossessions have increased in the first half of the year. This year, car repos are up twenty-three % compared to last year.

Hopefully, this will result in the U.S. Federal Reserve cutting interest rates. This may happen in September, so consider holding off on the new car loan or mortgage. One or two percentage points on an auto loan or mortgage could result in saving tens of thousands of dollars over the life of the loan. With a mortgage, the savings are substantial.

Involuntary versus Voluntary Car Repossession

While a voluntary car repo means you surrender the car voluntarily to the auto loan lender versus the repo man taking your car, the results are the same financially. That means that you are responsible for any balance left on the loan. This is even if the car sells at auction.

For example, if you owe $25,000 on the car loan and the car sells for $15,000, there is still a $10,000 balance. That is known as a deficiency balance.

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This is important to know because many times, borrowers believe that if they surrender the car, then they don’t have to pay the balance on the auto loan. But that’s not true. The lender could sue you for the balance and get a deficiency judgment. The deficiency judgment can be enforced by the creditor seeking a levy on your bank accounts, garnishing your wages, or placing liens on other assets.

A payment plan can be worked out with the lender. However, a borrower can also file for bankruptcy to wipe out the deficiency judgment.

Filing for Bankruptcy

Whether Chapter 7 or Chapter 13 bankruptcy is filed, a deficiency balance or judgment on a car loan can be wiped out with bankruptcy. Since the car was repossessed, the debt is now considered unsecured.

With Chapter 7 bankruptcy, while known as a liquidation, if your assets are exempt, bankruptcy wipes out the entire debt. If there are any non-exempt assets, the bankruptcy trustee sells those assets, and any funds recouped go toward the creditors on a pro-rata share. There is also the option of buying back the value of the non-exempt assets from the trustee.

With Chapter 13 bankruptcy, as an unsecured debt, the creditor will receive a portion of the debt repaid, but typically, what unsecured creditors receive is minimal.  

With Chapter 13, known as a reorganization or wage earner’s plan, a payment plan lasting three to five years is approved by the bankruptcy judge. The bankruptcy trustee will receive those payments and distribute them accordingly.

Need to look for prior blog posts or other categories? Click the links below:

• Bankruptcy
• Your Wallet

To read archives on issues related to car loans, click this link. Colleges and universities can purchase my bankruptcy law textbook directly from Routledge Publishing. For paralegals and students buying single copies, you can do so via Amazon Books. To access my YouTube channel, click this link.

Please note that the information on this site does not constitute legal advice and should be considered for informational purposes only.

Updated March 31, 2025.