Why the Ipso Facto Clause Will Get You Into Trouble in Bankruptcy

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Most people who file bankruptcy drive cars that are financed (have money owed on them).Most people also need and/or want to keep a car during and after the bankruptcy. The problem is that cleaver banks and credit unions have included an ipso facto clause in the finance paperwork. It states that there are certain events of default and that these events include paying late, not having insurance or filing bankruptcy.

So when the person filing bankruptcy makes all payments on time and maintains insurance as required, that person is STILL in default per the ipso facto clause. This allows the creditor to repossess the car legally unless certain steps are taken to protect the owner.

In Chapter these steps may include signing of a reaffirmation agreement, or filing a motion to redeem the property. More on those in future blogs.

The important point to remember is that your lawyer needs to be aware of the ipso facto clause to keep you out of trouble and prevent nasty repossession surprises after you file bankruptcy.

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