The Short Answer
What happens when you fall behind on your car payment during bankruptcy depends on whether you're in Chapter 7 or Chapter 13. In Chapter 7, the finance company can file a Motion for Relief from Automatic Stay and ask the court's permission to repossess your vehicle. In Chapter 13, your car payment is typically rolled into your monthly trustee payment — but if you fall behind on those trustee payments or on a direct lease payment, the lender can file the same motion to repossess. Either way, falling behind puts your vehicle at serious risk.
If you get behind on your car payment while in Chapter 7 bankruptcy, the finance company may file a Motion for Relief from Automatic Stay requesting that the bankruptcy court allow the finance company to repossess the car. In most Chapter 13 bankruptcy cases, your car payments will be included in your payments to the Chapter 13 bankruptcy Trustee if you are purchasing the vehicle. If you are leasing the vehicle, you will make lease payments directly to the finance company. If you get behind in your payments to the Chapter 13 bankruptcy Trustee or to the finance company for leases, the finance company may file a Motion for Relief from Automatic Stay requesting that the bankruptcy court allow them to repossess the car.
Key Takeaways
- In Chapter 7, falling behind on a car payment gives the lender grounds to file a Motion for Relief from Automatic Stay and pursue repossession.
- In Chapter 13, car loan payments on a vehicle you are purchasing are usually included in your monthly payment to the trustee — not paid directly to the lender.
- If you are leasing a vehicle during Chapter 13, you make those lease payments directly to the finance company, not through the trustee.
- Falling behind on either your trustee payments or your direct lease payments in Chapter 13 can trigger a Motion for Relief from Automatic Stay.
- Once the court grants that motion, the automatic stay is lifted for that creditor and they can repossess your vehicle even while your bankruptcy case is still open.
- Staying current on your vehicle obligation — however it is structured — is one of the most important things you can do to protect your car during bankruptcy.
Attorney Insight
The mistake I see most often is clients assuming that because the automatic stay is in place, the lender simply cannot touch their car — no matter what. That's not how it works. Filing bankruptcy triggers the automatic stay, but a lender who doesn't get paid can go straight back to the bankruptcy court and ask for permission to repossess. In Chapter 13 cases here in the Middle and Western Districts of North Carolina, the trustees are very specific about how car payments flow through the plan, and any gap in payments — even one month — can give a lender the opening they need to file that motion. The safest thing you can do is communicate with your attorney the moment you think you're going to miss a payment, not after it's already happened.
