DOES BANKRUPTCY STOP VEHICLE REPOSSESSION?
Certainly. The "automatic stay" is the name of the federal law that stops virtually all collection actions by creditors against you. It also protects everything you own. That includes anything you own on which a creditor has a lien, like your vehicle.
The Bankruptcy Code directly states that a bankruptcy filing immediately stops "any act to . . . enforce against property of the debtor any lien . . . ." (See Section 362(a)(5).)
Repossession of a vehicle is an act to enforce a vehicle lender's lien against your vehicle, and is definitely stopped by a bankruptcy filing.
The automatic stay applies to both Chapter 7 "straight bankruptcy" and Chapter 13 "adjustment of debts" (and all other types of bankruptcy).
HOW FAST DOES THE "AUTOMATIC STAY" WORK?
As the term describes, the stopping of repossession is automatic. The bankruptcy filing itself operates as the "stay," or legal stopping of repossession.
There is no need for a court order or court hearing. A creditor does not have the opportunity to stop the automatic stay from going into effect.
At the filing of the bankruptcy case it is assigned a case number. That case number is evidence to any creditor, including your vehicle lender, its attorney, and its repossession agent that you have filed a bankruptcy case and that the automatic stay is already in effect. Anybody can then verify this.
HOW DOES THE VEHICLE CREDITOR FIND OUT ABOUT THE BANKRUPTCY FILING?
You or your attorney should directly inform your vehicle creditor if your vehicle is at risk of being repossessed. Otherwise it may not learn about the bankruptcy filing in time to comply with the automatic stay.
All creditors that you list on your creditor schedules are formally informed by mail just a few days after your case is filed. That notice refers explicitly to the effect of the automatic stay. But creditors are expected to know the law and almost universally comply by stopping any pending repossession.
Even if you file your bankruptcy case just as the repo truck drives up to take your vehicle, giving the case number to the repo agent will make him or her not touch your vehicle.
WHAT IF MY CAR OR TRUCK IS REPOSSESSED IN SPITE OF THE AUTOMATIC STAY?
This almost never happens, assuming that the vehicle lender or repo agent is told about the bankruptcy filing. The reason it doesn't happen is not just that it's illegal. It's because the vehicle lender can and likely will be punished if it violates the automatic stay by repossessing a vehicle when it knows about a bankruptcy filing. The Bankruptcy Code says that
an individual injured by any willful violation of a stay provided by this section shall recover actual damages, including costs and attorneys' fees, and, in appropriate circumstances, may recover punitive damages.
In other words not only would the lender have to compensate you for whatever wrongfully repossessing the vehicle cost you directly, such as any lost wages. It would have to pay your attorney's fees for dealing with the repossession (on top of presumably paying for its own attorney. AND it could be punished by being forced to pay more to teach it a lesson.
Violating the automatic stay is essentially the flaunting of a court injunction. Bankruptcy judges don't take kindly to creditors doing that. Vehicle lenders have been slapped hard for wrongful repossessions enough times that at least reputable ones don't break the law purposely. But every once in a while an overly aggressive one needs to be reminded of the consequences. The law provides the means to do so.
IS IT TOO LATE IF MY VEHICLE JUST GOT REPOSSESSED?
You may still be able to get your vehicle back, but you have to act quickly.
You have two sets of options for regaining possession of your vehicle. The first is to "reinstate" your vehicle loan through California law. The second is file bankruptcy and potentially use federal law to reduce the vehicle loan payments.