Can my auto loan be dismissed in a bankruptcy if the loan has been turned over to a collections agency?

I owe aproximately $7500 on my car. The loan was turned over to a collection agency. I BBB’d this collector/company and found that they have a C- rating. It’s my understanding that collection agencies pay creditors pennies on the dollar for outstanding loans and that they can’t technically collect the debt. They can only make annoying calls and try to scare people into settling a debt. Can they repossess the car if I don’t make the payments or can the debt be dismissed under a bankruptcy?

Asked on July 30, 2010 under Bankruptcy Law, California


SJZ, Member, New York Bar / FreeAdvice Contributing Attorney

Answered 10 years ago | Contributor

1) If the collection agency bought the debt--even for pennies on the dollar--and it was assigned to them, then it is now their debt and they have a legal right to enforce it or collect on it. That means that they could repossess the car and/or sue you.

2) Bankruptcy will stop collections efforts, but the creditor or collections agency will still be able to repossess if the debt is not eventually paid. A chapter 13 bankruptcy would, besides at least temporarily halting collections and giving you some time, also give you some tools which may help reduce the amount owed on the car (called a "cram down")--you'd still have to pay, but less. This is something to discuss with a bankruptcy attorney.

3) Note that will bankruptcy temporarily stops collections, it doesn't reverse actions already taken; if the car is repossessed and resold before you file, you will lose it.

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