Bankruptcy Uptick, Be Very Careful with Repossessions

• By: Guest Blogger
• On: 05/21/2020 12:10:32
• In: Texas Posts
• Comments: 0

David L. Pritchard

The Pritchard Law Firm

In the last several weeks, there has been an uptick of new cases where the used car dealer sells and finances the car, and then the borrower files for bankruptcy.  So the question is: What should dealers do if they find themselves in this situation? 

The Bankruptcy Courts are clear: upon notice, you need to release the car back to the borrower. The rules state that you must return the car, even if you have reason to think the borrower is in default on the contract for reasons other than payment issues.   

If a dealer refuses to release the car to the borrower, this could end up being an expensive decision (and mistake) for the dealer. It regularly costs over $10,000 plus legal fees to get this issue resolved. (Yes, this is money your dealership is going to pay to the debtor and their attorney.) Additionally, if you do not pay, you can be held in contempt of court. 

So the lesson here is: The best practice is to release the car back to the borrower.   

If you feel there is a reason not to surrender the car after receiving notice that your borrower filed for bankruptcy, you need to act quickly and seek legal advice to make sure your opinion is correct.