Bankruptcy Chapter 7 & 13

McDonald Law
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Repossession of Cars & Other Vehicles

State laws differ but generally, if you are behind on car payments, the creditor may take possession of your car without notice. Unless the contract gives a grace period, the car can be repossessed if you are only a day late. You are not required to give the car to the creditor, but they may take it from the street or a parking lot. Concealment of the vehicle with intent to hinder the creditor may be a criminal offense. [See ARS � 13-2204 for example]  If the car is repossessed, the creditor may sell the car at an auction, and you may still have to pay the balance remaining on the loan after sale of the vehicle, plus the creditor's collection expenses.

Chapter 13 can stop repossessions.  If a car or other vehicle has been repossessed but not sold by the creditor when the case is filed, the court may order the creditor to return it to you. Under Chapter 13, interest charges may be reduced, and your monthly payments can often be lowered.  In certain cases, the balance secured by the vehicle may be reduced to its market value, even if this is much less than the loan balance. [11 USC �1325(a)(5) & unnumbered last subparagraph]  In Chapter 13, you pay for the car in a single monthly payment which consolidates all of your bills.  Often this one payment can be lower than your old car payment alone.

What stops repossession?  See Protection from Creditors.

What if you had a prior bankruptcy within the last year?  See the Caution on the Protection from Creditors page.

What if you had a prior bankruptcy within the last 8 years?  See Who is Eligible.

Some Details About Repossession in Arizona

Repossession of vehicles in Arizona is governed by the Chapter 9, Secured Transactions. to Title 47, Uniform Commercial Code, of the Arizona Revised Statutes (ARS), ARS 47-9101 et seq.  The procedures described below assume that the lender has a properly recorded security agreement in the vehicle.

Right to repossess the vehicle.  If you do not make any payment when due, you are in default under the financing contract.  You may also be in default under the contract if you allow insurance to lapse, or if you fail to perform any other requirement under the contract.  If you default under the contract, the lender can take possession of the vehicle as long as long as it does not breach the peace.  You are not required to give the vehicle to the lender if the lender has not obtained a court order, but the lender does not have to notify you of its intention to repossess the vehicle.  ARS 47-9609

Right to sell the vehicle.  The lender may sell the vehicle if you are in default.  Proceeds will be used to pay for the expenses of repossession and sale, and then the balance of the loan.  ARS 47-9610, 47-9615

Bankruptcy stops the sale.  The stay which goes into effect when a bankruptcy is filed prohibits the creditor from selling the vehicle.  In Chapter 7, a creditor may ordinarily get the stay removed to complete the sale.  In Chapter 13, it may be possible to force the creditor to return the vehicle.  11 USC �362

Notice of sale of the vehicle.    After default, the lender may sell the vehicle.  If the vehicle transaction was for personal, family or household purposes, the creditor must notify you of its intent to sell the vehicle.  The statute gives the form below for the notice, but the creditor may use other forms if the required information is given.  ARS 47-9614

[Name and address of secured party]


[Name and address of any obligor who is also a debtor]

Subject: [Identification of Transaction]

We have your [describe collateral], because you broke promises in our agreement.

[For a public disposition:]

We will sell [describe collateral] at public sale. A sale could include a lease or license. The sale will be held as follows:

Date:   ____________________
Time:   ____________________
Place:  ____________________

You may attend the sale and bring bidders if you want.

[For a private disposition:]

We will sell [describe collateral] at private sale sometime after [date]. A sale could include a lease or license.

The money that we get from the sale (after paying our costs) will reduce the amount you owe. If we get less money than you owe, you [will or will not, as applicable] still owe us the difference. If we get more money than you owe, you will get the extra money, unless we must pay it to someone else.

You can get the property back at any time before we sell it by paying us the full amount you owe (not just the past due payments), including our expenses. To learn the exact amount you must pay, call us at [telephone number].

If you want us to explain to you in writing how we have figured the amount that you owe us, you may call us at [telephone number] [or write us at [secured party's address] ] and request a written explanation. [We will charge you $ for the explanation if we sent you another written explanation of the amount you owe us within the last six months.]

If you need more information about the sale call us at [telephone number] [or write us at [secured party's address] ].

We are sending this notice to the following other people who have an interest in [describe collateral] or who owe money under your agreement:

[Names of all other debtors and obligors, if any]

Right to redemption.  You can get the vehicle back if you pay the full balance due under the contract (not just the payments in default) and the lender's expenses before the vehicle is sold. ARS 47-9623

You are liable for the deficiency.  If the amount that the lender gets from the sale of the vehicle is not enough to pay its costs plus the balance of your obligation, you will be liable for the deficiency.  ARS 47-9615

Failure of creditor to follow statutory procedure.  If a creditor does not follow the procedures under the law, you may ask a court to stop the sale, or to assess monetary damages against the creditor.  ARS 47-9625  Damages assessed against the creditor do not eliminate your liability for any deficiency which you might owe.

Links to Arizona Revised Statutes (ARS) are to the web site of Arizona Legislative Computer Service of the Arizona State Legislature, ALIS Online.

This page was last revised: 02/18/09