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The automatic stay
When a Chapter 7 bankruptcy is filed, the court the case is assigned to issues what is known as an automatic stay. This is a court order that prohibits creditors from taking any further steps to collect debts included in the bankruptcy. This means that filing a Chapter 7 bankruptcy temporarily prevents vehicle repossessions even when automobile loans are seriously delinquent.
Reaffirmation, redemption or return
What happens next will be determined by how much the vehicle is worth and how much it will cost to pay off the loan. When cars are worth far less than the amount owed, returning them to banks may be the wisest option. When the numbers skew the other way, it could make more sense to reaffirm the loan or redeem the vehicle. Reaffirming the loan involves forgoing bankruptcy protection and agreeing to keep making payments. Redeeming the vehicle involves paying off the outstanding loan or working out a deal with the bank based on the car's current value.
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