I get asked this question a lot, and the answer varies pretty widely depending on the facts. Most commonly, though, I am asked this question by someone who needs to file for Bankruptcy and has made the decision that he cannot afford to keep his car. In other words, the client is going to surrender his interest in the car to the car lender during the bankruptcy.
There are a number of options in a Chapter 7 Bankruptcy for dealing with secured debt (i.e., debt that is secured by a lien on a piece of property, like a car loan or a mortgage). One of them is to surrender the property to the lender. So, the question being asked is really – so, how does that surrender thing work and how long does it take anyway?
Well, that depends.
I’m a lawyer, you were expecting a definite answer?
When the bankruptcy is filed the Debtor files a Statement of Intent that states what he intends to do with his secured debt. So, in this case, the Debtor will indicate that he intends to surrender the vehicle. However, at the instant that the case is filed the Automatic Stay goes into effect, and that stays (or temporarily stops) all collection activity against the debtor or property of the debtor – including the car in this illustration. So, even though the Debtor is indicating his intention to surrender his car to the lender, the lender can’t take it; because taking it would be an effort to collect a debt, and that is prohibited by the Automatic Stay. Are we having fun yet? Thought so.
Now the ball is in the lender’s court. They can either wait until the Bankruptcy is over with and then repossess the vehicle., or they can file a Motion with the Bankruptcy Court asking the Court to lift the automatic stay and abandon any interest that the Bankruptcy estate might have in the vehicle. The creditor can do that as soon as he learns of the Bankruptcy filing or not until later. It isn’t uncommon for creditors to wait until after the First Meeting of Creditors, which is generally about 30 days post-petition, to file their motion. Given these facts, once that motion is filed, it will be granted in about 3 or 4 weeks – kind of depending on how excited the creditor’s lawyer is to get it done. The net effect of this motion being granted is the Bankruptcy Court gives the creditor permission to collect his debt against the property – not the debtor, just the property. The stay remains in effect as to the Debtor, and assuming that no objections to discharge are granted; the stay will be replaced by the discharge injunction at the conclusion of the Bankruptcy. The discharge will prohibit the car lender from EVER trying to collect money from the debtor again. The creditor is welcome to the car, because he has a lien on it; but that is all he gets.
After the creditor gets permission to repossess the car, and he will – eventually. Some creditors will have someone out looking for it the next day. Others take longer to get around to it. In my office I point out to my clients that they don’t want to be driving this car if a repo guy might be looking for it. Walking out of the grocery store with ten sacks of groceries including 2 gallons of ice cream and finding no car to put them in is not a situation most of my clients want to find themselves in. So, I will generally arrange for the debtor to deliver the car to the lender. Not everyone does it that way.
The long and the short of this is that even if you want to give the car back it will take just under a month or . . . longer, to do so. On the other hand, if the Debtor wants to keep the car as long as possible, that is a completely different analysis and one that is going to vary widely depending on the specific facts, the creditor involved and even the court in which the case is filed.