Stopping Repossession

• Once you file your bankruptcy petition, your creditors will be prevented from collecting from you, which is called an automatic stay. No court action must occur for the stay to go into effect. The bankruptcy code provides that all debtors, once they file their bankruptcy petitions, will be protected by the automatic stay. The stay acts as an injunction, preventing all of your creditors from contacting you about your debt. Any creditor who violates the stay may be subject to punishment.
  
  

Chapter 7 Process

• While the automatic stay protects you, a bankruptcy trustee appointed to your case will deal with your creditors. If you filed for Chapter 7 bankruptcy, the bankruptcy trustee will examine your bankruptcy schedules. You should have listed all of the property you own on the schedules. The bankruptcy trustee will examine the value of your property, if necessary. If the bankruptcy trustee finds nonexempt property, she will sell this property and use the proceeds to pay a portion of your creditors. Otherwise, she will recommend that the bankruptcy court discharge your debt.
  
  

Reaffirming the Debt

• Because the discharge wipes out your debts, the creditor with whom you financed your vehicle would not want you to keep the vehicle without a new agreement. This is where the reaffirmation agreement comes in. At the end of your bankruptcy case, you will no longer be obligated to pay your already existing debts. The reaffirmation agreement reaffirms the debt on the vehicle. By signing the reaffirmation agreement, you agree to pay continue to pay for the vehicle under the terms of your original contract.
  
  

Lifting the Automatic Stay

• In the case that you do not reaffirm the debt, your creditor may attempt to have the automatic stay lifted. The creditor cannot legally repossess the vehicle while you are under the protection of the automatic stay, but if the bankruptcy court lifts the stay, he can. A creditor would request that the stay be lifted to protect its interest in the vehicle. For example, if you continue to keep the vehicle while going through your bankruptcy case, but neglect to make payments and wreck the vehicle, the creditor will suffer a loss.