Car Repos

Written By Jonathan Arias

A. Pre-Bankuptcy Options

1. Pre-Repossession

b. Does your lender have an enforceable security interest?

One of the several prerequisites that must exist before a lender (or reposer) can repossess a car is that the lender must have an enforceable security interest.

With respect to a car, a security interest is a claim (or a lien) a lender attaches to a car in order to secure it gets paid back. Almost all cars purchased at a dealership will contain this clause in the sales contract. While it is highly likely that a security interest was properly executed by the lender, it is still worth reviewing the contract, as this is your first line of defense.

To create a security interest, three things must exist:

(1) the lender must have given you value— that is, actually loaned you the money for the car;

(2) you must have been given the right the right to drive and possess the car, or the ability to transfer it; and

(3) you must have signed the sales contract with a provision stating you are granting the lender a security interest and it must sufficiently describe the car you purchased.

A sufficient description reasonably identifies the vehicle. For example, a contract describing "2022 Honda Accord, VIN: 1HGCV1F16MA123456" clearly identifies the specific vehicle securing the loan; stating merely "a car" without nothing more isn't sufficient. This level of detail ensures there's no confusion about which asset the lender can repossess if you default.

You should also ensure that the contract doesn't contain any of the following prohibited clauses:

(a) arbitrary acceleration without reasonable cause,

(b) confession of judgment or wage assignment,

(c) authorization for unlawful entry or breach of peace during repossession,

(d) waiver of your right to sue for illegal collection or repossession,

(e) broad power of attorney for collection or repossession (except limited authority for insurance claims),

(f) waiver of legal remedies against the seller,

(g) acceleration after repossession when you tender sufficient redemption amount following a payment-only default, or

(h) waiver of jury trial rights—if any of these appear in your contract, those provisions are void, and their presence may indicate broader enforceability issues with the security interest.

All three requirements must coexist for a security interest to "attach" to the vehicle. If any element is missing, the lender lacks an enforceable security interest and cannot lawfully repossess the car.

c. Did you actually default?

Summary: Under the UCC, lenders can only repossess after default, but you haven't defaulted if you're legitimately withholding payments due to warranty breaches or contract violations by the dealer. If your car malfunctions under warranty, you may withhold payments after notifying the lender, making any subsequent repossession potentially unlawful.

Under Article 9 of the Uniform Commercial Code, a lender can repossess a vehicle only after you have defaulted.

Every auto finance contract defines what “default” means, but almost always it includes (1) missing a payment (2) paying late, (3) not maintaining collision insurance or (4) violating another term of the contract. Unless there is a default, the lender has no present right to possession. A repossession done before default is unlawful.

A default occurs when you have no legal right to withhold payments. In other words, there are a number of circumstances when you do not need to make payments, namely, when the lender or dealer breaches your contract or fails to meet its obligations under a warranty it promised you.

All new vehicles come with a manufacturer's express warranty, which covers things like the engine, transmission, drive axle, brakes, steering and ignition system for a period of time or mileage. For example, in New York, the warranty covers 18,000 miles or two years. Dealers selling used cars, too, must provide a warranty. Dealers are also known to offer service or "extended warranties" that can be purchased in addition to the basic warranties and may offer extra coverage. Under all warranties, dealers and manufacturers are required to repair the vehicle or refund the buyer if the vehicle fails to conform to the express warranties after reasonable attempts to repair the defects.

In the event that your car malfunctions and causes you damages, you may be entitled to withhold payments and deduct "all or any part of the damages resulting from any breach" of your contract. However, you must first notify the lender that you are withholding payments.

Withholding payments, however, can be dangerous in the event that your understanding of your damages or of your warranties is wrong. Under such a circumstances, therefore, you may continue to make payments to your lender in protest; for this will help you down the line if any issues continue.

Thus, in the event that your car was malfunctioning while under a warranty, and nonetheless was repossessed, the repossession might be illegal as it is possible that you did not actually default.

d. Negotiate with your lender

If the above solutions do not apply, you should consider negotiating with your lender for a reduced payment, loan modification or term extension.

When you fall behind on payments, lenders often prefer to keep the loan “performing” rather than repossess the car, since repossession is expensive, time-consuming, and unpredictable. In this event, lenders often offer modified plans that reduce your payments. These plans have different names, including Temporary Payment Reduction Plan, Hardship Plan or Good-faith payment program. These programs became common during the pandemic (for obvious reasons), and they continue today.

You should be cautious of these plans, however. For a modification plan to be effective—that is, for it to replace the original terms in your contract— it must (1) be in writing, (2) signed by the lender, (3) explicitly change the payment amounts or the timing and (4) be accepted by the borrower.

Phone conversations and promises by the customer service representative don't change the contract. Emails don't change the contract unless they are signed and explicitly, and even making a reduced payment doesn't by itself, modify the contract.

These so-called "oral modifications" are routinely prohibited in car sales contracts.

For example, in a recent case, a borrower failed to complete enrollment in Capital One's Temporary Payment Reduction Plan (TPRP) because he never signed and returned the required agreement letter. The email from Capitol One clearly stated that after making the good faith payment, he needed to "sign and return your agreement letter to complete your enrollment"—a two-step process where the borrower only completed step one.

His $262.63 payment alone did not modify the Original Contract because: (1) the contract required any changes to be in writing and signed by Capital One, which the unsigned email was not; (2) his partial payment looked the same as simply making a late payment under the original contract—it didn't prove a new agreement existed; and (3) paying less than what he owed could just as easily mean he was breaching the contract as it could mean there was a modification.

Because the borrower never signed and returned the TPRP letter, no binding modification existed, he remained in default, and Capital One had the right to repossess his vehicle.

e. Voluntarily return car

If none of the above strategies work, you should consider voluntarily returning the car. By doing so, you can limit how much you ultimately pay in the deficiency judgment the lender will inevitably pursue you for. Moreover, you may even negotiate with the lender to drop a potential suit against you.

2. Car repossessed through self-help

After a default, a secured creditor can reposes your car without a court order, as long such self-help repossession doesn't "breach the peace." But before a repossessor can even entertain such an idea, you must have agreed to the lender's right to reposes in your contract. Moreover, you must be at least 30 days in default; and if so, must then be mailed a Notice of Default giving you an additional 30 days to cure your default before the repossession.

In all, this means you have a total of 60 days, or 2 months—from the day you miss a payment before the repo man can even attempt to take your car. Self-help repossession is a quite extraordinary right under the law; not many other circumstances allow for the taking of property without a court order.

This right, however, is balanced by the onerous process a lender must carefully follow before taking a car. A lender's failure to send the proper notice, for instance, or, for conducting the repossession in a manner that breaches the peace, may eliminate a lender's ability to attach a deficiency judgement on you. They may also be held liable for common law tort claims like wrongful possession, conversion or trespass to chattel. What's more, they may even be charged with a crime.

a. When is the peace breached?

As the term suggests, it is "a disturbance of public order by an act of violence, or by any act likely to produce violence, or which, by causing consternation and alarm, disturbs the peace and quiet of the community."

Recent federal decisions (as of 2025) illustrate how New York judges evaluate repossession conduct under this definition. In cases where repossession agents use force, threaten violence, or create conditions likely to provoke violence, courts have found plausible breach-of-peace claims.

New York courts recognize a breach of the peace when repossession agents use violence, threaten violence, or engage in conduct likely to provoke violence.

For example, in one case, a judge ruled that a repossession agent breached the peace when he trespassed onto the debtor’s property, threatened to “tase or mace” the debtor and her son, and created a chaotic scene. Similarly, in another case, the repossession agent physically pulled the debtor out of his car, and the court denied dismissal because force of that nature inherently disturbs public order.

By contrast, New York courts have declined to find a breach where there is no confrontation. In one case, the repossessor cut a lock to access the collateral, and in another case, agents used an unauthorized key to enter property. In both cases, courts found no breach of the peace because the conduct was non-violent and did not risk an escalation into violence. This reflects New York’s distinctive focus on whether a repossession creates a likely risk of violent confrontation, rather than on trespass or property entry alone.

3. After Repossession

a. Did you get an opportunity to redeem car and reinstate contract? Redemption and reinstatements

There are things you should consider before you file for bankruptcy, namely, if you can get your car back without filing. First, it's important to know if you're leasing or financing your car.

If you're leasing, you have a right to do what's known as a cure of your default and a reinstatement of your contract. Curing your default entails paying back your missed payments and paying newer, delinquency charges; while reinstating brings back your contract to its original, pre-default mode—it's like starting from day one of your contract when you signed it. Several other fees need to be paid as well, such as the cost of repossessing, storing, picking up and redelivering your car to you. You have a right to do this within 25-days of receiving a written notice if your rights. Importantly, you may only reinstate once.

If you're financing your car, you can reinstate your contract and redeem your car before it is resold. Here, you can retrieve your car by similarly paying your missed payments. Your lender can't accelerate your loan, that is, request your full loan amount.

Lender must also notify you of these rights after repossession within 72 hours, and the contents of the notice must lay out the reinstatement amount, the lender’s contact info, and instructions to retrieve the car. It must also explain the unaccelerated arrears amount, plus reasonable delinquency fees, repo or storage charges, and attorney fees up to 15%. This right exists until the vehicle is sold.

The penalties for a willful violation of these requirements are punishable as misdemeanor and may bar a lender’s ability to recover collection charges.

b. Was the car sold in the proper manner?

After your car is repossessed, a creditor must either:

  • (1) dispose of the car by either re-selling it in a commercially reasonable sale and applying the net sales proceeds to the amount you owe, or

  • (2) keep it in full or partial satisfaction of the debt, which is referred to as a Strict Foreclosure.

Disposition

If your lender elects to dispose the car in a sale, it must apply the sales proceeds as follows:

(1) first, to reasonable expenses of repossession and sale;

(2) second, to satisfaction of the debt underlying the car;

(3) third, to subordinate liens;

(4) fourth, if any surplus remains, to the debtor.

Importantly, if the sale doesn't cover the entire debt, a deficiency exist, and the creditor can sue you for what is owed on the loan (as long as the car is sold in a commercially reasonable manner).

More likely than not, the sale proceeds will be far lower than what you owe because of sales, storage and repossession fees.

Strict Foreclosure

If your lenders decides to keep the car in full or partial satisfaction of the loan, it can only do so if the following conditions are met:

1. It sends you a written proposal;

2. The debtor (you) consents;

3. No other lienholder objects;

4. In a consumer transaction, additional limits apply: (NOTE TO SELF: ADD UCC AND PPL CITATIONS).

C. When is a sale commercially reasonable?

It is sometimes best to understand something by knowing what is isn’t. The following case serves as a great example of a sale that was deemed commercially unreasonable.

Case example

Jason Coxall bought a used Lexus for $8,100, but after mechanical problems he stopped making payments. The lender, Clover Commercial, repossessed the car and sold it privately back to the same dealer for only $1,500 — less than 20 percent of the purchase price.

The court found that under New York’s Uniform Commercial Code, a secured creditor may sell repossessed collateral — but every aspect of that sale must be “commercially reasonable.” That means the creditor must act in good faith, use reasonable commercial practices, and try to get a fair price.

Clover Commercial couldn’t show that it advertised the car, contacted other buyers, or got an appraisal. The only thing it showed was the low price. Because the sale price was so far below market and the buyer was the original dealer — creating a risk of self-dealing — the court held the sale was not commercially reasonable.

Under UCC § 9-626 and long-standing New York precedent, when a creditor fails to conduct a commercially reasonable sale, it cannot recover a deficiency judgment — the remaining balance after the sale — unless it can prove what the car would have sold for in a proper, reasonable sale. Clover Commercial had no such proof, so the court barred it from collecting any deficiency.

On top of that, because this was a consumer transaction, the court awarded Mr. Coxall statutory damages — about $1,846 — under UCC § 9-625(c)(2), even though he hadn’t proved any actual financial loss.

Whether a sale was conducted in a commercially reasonable manner will almost always be determined on a case-by-case basis; but the UCC requires that a sale be made:

  • (1) in the usual manner on any recognized market;

  • (2) at the price current in any recognized market at the time of the disposition;

  • (3) otherwise in conformity with reasonable commercial practices among dealers in the type of property that was the subject of the disposition.

d. Lack of Notice

As mentioned many times throughout this guide, your lender must provide you with adequate notice in many circumstances, including before the sale of your car. Its failure to do so may reduce what you ultimately owe in a deficiency lawsuit, if it has the ground to pursue you.

Case example

Evan Esposito leased a Ford truck. When he fell behind and failed to maintain insurance, Ford Motor Credit repossessed the vehicle and later sold it at auction for $13,500.

Ford then sued him for more than $12,000 — claiming unpaid lease payments, late fees, repossession costs, and the “deficiency” between what the vehicle sold for and what Ford said it was worth at the end of the lease.

Esposito argued he never got proper notice of the sale.

Vehicle leases are governed by New York Personal Property Law § 330-353, with the goal of protecting consumers in motor vehicle leases. These sections set out a new and detailed formula for what a lessor can collect after repossession.

PPL § 340(2) requires the lessor to hold a commercially reasonable sale of the vehicle after at least ten days’ written notice to the lessee. And PPL § 340(3) says the notice must clearly state: the date of sale, the sums due under the lease, the vehicle’s estimated residual value, and that the lessee has the right to submit a cash bid at the sale.

Ford Motor Credit never sent this required “notice of sale and right to bid.” It only sent a generic notice of repossession and personal property” letter, which said nothing about a sale date or residual value.

Because Ford failed to send the notice required by PPL § 340, the court ruled it could not recover “lost-profit” damages** under PPL § 341(1)(e) — that is, the deficiency between the vehicle’s estimated residual value ($14,173) and the actual sale price ($13,500).

However, Ford could still recover items the statute lists separately: unpaid lease payments that came due before repossession, late fees and service charges, and reasonable repossession and storage costs.

In total, Ford was awarded about $2,700 — far less than the $12,000 it claimed.

If none of the above options save your car, or if they won’t prevent a massive deficiency judgement against you, bankruptcy may be your next best option.

B. Bankruptcy

1 .Preliminary Considerations

If bankruptcy appears to be your best option, under which chapter should you file: Chapter 7 or 13? And what law should you select: federal or state?

A chapter 7 is the quicker process but comes at the risk of losing your car. Moreover, your income must be below a certain amount to qualify for chapter 7.

If keeping your car is your main priority, the first thing you must do is figure out if you have any equity in your car. Next, you’ll need to calculate if you pass the so-called means test.

In short, a chapter 7 bankruptcy takes most of your property, sells it, and repays your creditors a certain amount before cancelling most of your debts. In contrast, a chapter 13 lets you keep almost all of your property but requires that you pay back your creditors with your future earnings over a 3 to 5 year repayment plan. A chapter 7 looks at what have now to repay your creditors; a chapter 13 looks forward to what you will earn in the future.

Moreover, when you file, the court issues you what’s known as an automatic stay—a demand that all collection attempts be paused until you’ve completed the bankruptcy process. With respect to your car, this means the repo man cannot take your car, and calls from debt collectors must stop.

2. Chapter 7

Despite chapter 7’s mandate that most of a debtor’s property be sold, it nonetheless exempts certain property from sale–under the idea that, to recover financially, certain property is necessary (like a car). Thus, an exemption lets you keep some property up to a dollar limit.

Under federal law, you may keep your car in a chapter 7 case if your equity in a car is less than $5,205. And if you don’t own a home—thus making the so-called homestead exemption obsolete—you may exempt up to an additional $15,800, for a total of $21,005. New York's motor vehicle exemption isn't as generous, as it is only up to $4,000 (or $10,000 if it is equipped for a disabled debtor).

Your equity in the car is its fair market value minus the payoff balance on the loan. If the loan balance is higher than the value, the equity is zero, so there is no realizable equity for exemption purposes: chapter 7 may not help you keep your car.

If you've determined that your equity is lower than $21,005, take a note that chapter 7 might be your best option so far.

a. Redemption and Reaffirmation

Even if your equity is above the exemption limit, you may still be able to keep your car through what's known as a redemption or, alternatively, a reaffirmation.

Redemption

In a chapter 7 case, a discharge won't limit your lender's right to take your car if you still owe money on its loan. But if you happen to have a large sum of cash, you may be able redeem your car by purchasing it for its replacement value. A few financing companies exist that will loan you money for the specific purpose of redeeming your car. Be cautious, though, as you should carefully consider if taking on extra debt is in your best interest.

That you can buy the car for its "replacement value" should not be ignored, as the replacement value will almost always be lower than the retail value since certain items purchased at sale can be subtracted.

Since finding the replacement value of your car can take some work, I've left instructions on how to do in a dedicated section.

But can request a 521(a)(2)(B) - extension.

Reaffirmation

Alternatively, you may also keep your car by reaffirming your debt with your lender. A reaffirmation is an agreement between a debtor and a creditor under which a debtor agrees to be bound under an obligation to a creditor—as in a loan—despite a bankruptcy discharge. In other words, you promise to keep paying the debt even though it can be eliminated in a discharge. Creditors offer reaffirmations in exchange for not taking your car.

Since the purpose of bankruptcy law is to give debtors a fresh start by eliminating their debts, the law views a reaffirmation with much suspicion, and requires that certain conditions be met before approving one.

For example, you must show that you fully understand the terms of the reaffirmation agreement, including the amount reaffirmed, the annual percentage rate, the repayment terms, and just about every other detail about the agreement. You must also demonstrate that the new agreement will **not impose an undue hardship** on you or your dependents; you must show that you can clearly make your payments; your projected income must exceed your expenses. And if you are represented by a lawyer, they must file a declaration indicating that they too believe the reaffirmation is in your best interest.

b. The Means-Test

If you're facing car repossession and considering bankruptcy, understanding the means test is essential. This test determines whether you can file Chapter 7 bankruptcy—where most debts are discharged—or whether you must file Chapter 13, which requires a repayment plan lasting three to five years.

Before 2005, judges had discretion to dismiss Chapter 7 cases if a debtor was "substantially abusing" the system. In one notable case, for example, a judge dismissed a Chapter 7 filing after finding that a couple earning $157,000 annually had purchased new cars and helped pay for their daughter's tuition while struggling with debt. They were forced into Chapter 13.

In response to creditor complaints that too many debtors were escaping their obligations, Congress passed the 2005 Bankruptcy Abuse Prevention and Consumer Protection Act. Its centerpiece is the means test—a standardized formula that screens people out of Chapter 7 based on their financial means.

Here's how it works: The test examines your income minus allowable expenses. If, over a five-year period, you could pay a significant portion of your unsecured debts, the law presumes you're abusing the system. You can rebut this presumption only by showing special circumstances, such as a serious medical condition or active military duty. Failing the means test generally forces you into Chapter 13.

Importantly, passing the means test isn't a guarantee. A judge can still dismiss your case for "bad faith" or if your overall financial picture suggests abuse—for example, if you maxed out credit cards on luxury items right before filing.

i. The Gross Income Bypass

The means test doesn't apply to everyone. Disabled veterans and certain active-duty military members, for instance, are exempt.

You may automatically pass the state if your household income is at or below your state’s median income (based on family size). Under this “gross income bypass,” neither the trustee, the judge, nor your creditors can challenge your chapter 7 filing for abuse.  

In New York, for cases filed on or after November 1, 2025, the median family income is as follows:

  • 1 earner: $71,393

  • 2 people: $90,520

  • 3 people: $112,616

  • 4 people: $135,475

  • For more than four: add $11,100 for each individual.

Your "current monthly income" for this calculation uses a six-month lookback, averaging your income from all sources—wages, interest, unemployment compensation, and tax refunds.

Determining Household Size

Determining household size seems straightforward, but blended families—which are increasingly common—complicate matters. In one case titled Johnson v. Zimmer, a debtor claimed seven household members by counting children and stepchildren who lived with her only part of the year. Her ex-husband objected, arguing she inflated her household to reduce her apparent disposable income.

Courts have developed three approaches to this problem: (1) a "heads-on-beds" method counting everyone under the roof; (2) a tax-dependent method counting only those claimed on tax returns; and (3) an "economic unit" method counting those whose finances are truly interdependent with the debtor. In Johnson, the court used a modified economic unit approach, treating part-time children as fractional household members, resulting in a household size of five rather than seven.

Thus, in cases involving joint custody, stepchildren, or blended families, courts will carefully examine who truly counts as part of your household, and the outcome can significantly affect whether you qualify for the bypass.

ii. The Net Income Determination

For debtors who don't qualify for the gross income bypass, the means test examines net income—gross income minus allowable expenses. Congress didn't leave expense determinations to judicial discretion. Instead, it adopted the IRS Collection Financial Standards, which the IRS uses for tax repayment plans.

IRS Standards: National and Local

The IRS standards include national guidelines (uniform across the country for items like food, clothing, and housekeeping supplies) and local standards (customized by region for housing, utilities, and transportation). The local standards recognize that costs vary significantly by geography.

Vehicle Expenses Under the IRS Standards

For someone facing car repossession, understanding allowable vehicle expenses is critical. The IRS transportation standards consist of two components:

  • Ownership Costs (National Standard): As of 2025, the allowable amount for car loan or lease payments is $662 per month for one vehicle or $1,324 for two vehicles. If you have no loan or lease payment, this allowance is $0.

  • Operating Costs (Regional Standard): These cover maintenance, repairs, insurance, fuel, registration, licenses, inspections, parking, and tolls. The amounts vary by Census Region and Metropolitan Statistical Area. For the New York Metropolitan Area, the 2025 allowance is $401 per month for one vehicle or $802 for two vehicles.

    A critical point: You can claim the full standard amount even if you spend less. If your actual operating costs are $300 per month but the standard allows $401, you can deduct the full $401 from your net income calculation. However, if you spend $500, you can only deduct $401. This rule can work in your favor when calculating means test eligibility.

Other Deductible Expenses

Beyond the IRS standards, you can deduct actual expenses for certain necessary items: health insurance, health savings account contributions, care for elderly or disabled family members, and home energy costs that exceed the IRS standard (with proper documentation). You may also deduct the average monthly payments due on secured debts and priority debts (taxes, domestic support obligations). 

The key principle: The means test doesn't simply accept what you actually spend. It's a standardized formula with specific carve-outs for special needs.

iii. The Actual Test: “Presumption” of Abuse

Now that we’ve covered how to calculate your net-income, here's how the calculation works:

Step 1: Determine your current monthly income (your six-month average).

  • Let’s say it’s $5,000 per month.

Step 2: Calculate your allowable expenses under the IRS standards plus your actual necessary expenses.

  • Let’s say they are $3,700.

Step 3: Add payments on your other expense, such as secured debts (like your mortgage and car loans) and priority debts (like child support and certain taxes).

  • Assume they are $1,000.

Step 4: Subtract Steps 2 and 3 from Step 1 to find your disposable income.

  • $5,000 − $3,700 − $1,000 = $300.

Step 5: Multiply your disposable income by 60 months to find your "five-year payback" amount.

  • $300 × 60 = $18,000.

The Abuse Threshold

Abuse is presumed if your five-year payback equals or exceeds the lower of: (1) $15,150, or (2) 25% of your unsecured nonpriority debts (with a floor of $9,075).

In this example, if you have $40,000 in unsecured debt, the $18,000 five-year payback exceeds both thresholds:

  • it's more than $15,150 and

  • more than 25% of $40,000).

Here, the law will presume you are attempting to abuse the system. The process isn’t over, though. You may still pass if you can demonstrate that you are experiencing special circumstances worthy enough to warrant a pass. If a special circumstances cannot be demonstrated, or if it is not approved, you will need to file under Chapter 13.

Special Circumstances

Even if you fail the means test, you have one opportunity to overcome the presumption of abuse by demonstrating that your financial situation differs from what the formula captures. The law specifically mentions serious medical conditions and active military duty, but courts have recognized other circumstances: unavoidable high commuting costs, childcare expenses, support for a disabled family member, student loan payments, or a sudden income drop.

Success requires more than assertion. You must itemize the expense or income change, provide documentation (bills, letters from providers, pay stubs), and explain why the expense is both necessary and reasonable. If the judge is persuaded, the presumption is overcome and you can remain in Chapter 7.

3. Chapter 13

A secured creditor—like your lender—has priority over unsecured creditors—like your credit card company. To cover its loan, it looks to your car (the collateral). But once you enter bankruptcy, it can't send the repo man after your car; it must request the car back from the court.

In a chapter 13, you can propose to keep your car during a 3 to 5 year repayment plan. But lender's often object to these requests out of concern that their interest in their cars will decline. A car's value drops as soon as its driven out the dealership, it is said; 3 to 5 extra years of use will also obviously reduce its value. Moreover, the value of a car will be lower if it's in an accident, sometimes completely if it's wrecked.

If over the repayment plan you stop making payments, your lender may not be able to sell the car at a price sufficient enough to cover the money it lent you.

Accordingly, lenders routinely attempt to take back their cars once someone files for bankruptcy. To do so, however, they must request it from the judge; the automatic stay, you'll recall, prevents them from repossessing your car. And even if your car was repossessed before you could file, you can request it back.

The law, however, will let you keep your car if you can prove two things:

(1) that the car will be adequately protected during the length of your 3-5 year repayment plan and

(2) that you will pay it an adequate amount during the plan.

I cover each requirement below.

a. When is a lender adequately protected?

A lender will argue that its interest in your car is no adequately protected as a result of the automatic stay because its value is declining daily. It will show, for instance, that the value of the car was higher a the beginning of your case by submitting an appraisal of the car.

In response, you will need to show that your car's value is not declining, and the best way to do this is by continuing to make payments on the car. These payments must be made within 30 days of filing. In addition, you must maintain car insurance at all times.

Moreover, you must have at least some equity in the car and show that you need the car to successfully complete your repayment plan—that is, you need it to keep earning money to pay back your creditors.

b. When is a lender adequately paid?

If a lender fails to secure the car, it will next strive to be paid as much as possible under the plan. Here, much room exists to negotiate with you lender. If you got your loan more than 910 days (two and half years) before filing for bankruptcy, you may be able to substantially reduce your payments—well below what you were originally paying before bankruptcy. The power of this option cannot be overstated. This option, though, is not available if you bought your car less than 910 days before filing.

In legal parlance, this ability to reduce your payments is referred to as a modification of your secured creditor's rights, and it will be forced to accept the lower payments ("crammed down").

c. Valuing your car - Lowering Payments

You may lower your car payment by challenging your lender's allowed secured claim to drop it down to its replacement value. This is often lower than the retail value since certain items purchased at sale can be subtracted.

This replacement value is "the price a willing buyer in the debtor's trade, business, or situation would pay a willing seller to obtain property of like age and condition."

Lowering the value of the car

Courts and creditors usually start with one of the many nationally recognized car exchange markets, such as the National Automobile Dealers Association (NADA) or Kelly's Bluebook. These valuations, however, can be opposed if you offer rebutting evidence. Remember that the filing of a proof of claim is prima facie evidence that it exist; though, a debtor can contest it.

Accordingly, you can rebut by offering what similar vehicles are going for on other websites like Ebay, Craig's List or Kelly Blue Book's Private Party Sales section, which all are usually lower since they do not come with all the overhead typically placed upon cars by dealers and resellers.

The value can also be reduced by the cost of repairs. And can also use auction sales prices. If you have more than average experience in selling cars, you may also offer your knowledge. Recall that per, Rash, the replacement value is "the price a willing buyer in the debtor’s trade, business, or situation would pay to obtain like property from a willing seller)."

Lowering the Interest Rate

Aside from lowering the value of the car, you may also lower your interest rate to what's known as the "current national prime rate" adjusted for the riskiness of your debt. As of December 2025, this rate is 6.75%, according to the Wall Street Journal.

The amount to be adjusted (increased) is between 1-3%: 1 for 3 for the riskiest debtors; 1 for the safest.

In one notable case, a debtor brought down his 24.99% contract rate to 5.25%.

Jonathan Arias
Next

The Financial Sweatbox: Why Waiting Too Long to File Bankruptcy Makes Things Worse