In 2017, there were an estimated 1.8 million vehicle repossessions. Despite this number, most lenders do not want to take this step because it costs them money. They pay to tow and store the vehicle, and the resale amount rarely covers the balance of the remaining loan. Creditors often work with clients who file bankruptcy to help them keep ownership of their vehicle.
Here’s how filing for bankruptcy may save your car.
Stop the Repossession
Most people know when they are at risk of losing their vehicles. Some lenders repossess when customers fall 30 days behind in their loan agreement. Other creditors allow people to miss two or three payments before they take possession. Filing bankruptcy is instant protection for anyone living in fear of their vehicle suddenly disappearing from their yard.
All collection efforts must stop as soon as the debtor or their attorney files for bankruptcy protection. An automatic stay on all accounts forces a halt to garnishments, foreclosures, and repossessions. A discharge of the debts removes the stay, but this process can take several months, and it gives people time to find a solution to their transportation problems.
Make an Agreement With the Lender
Some lenders willingly work out new agreements with their customers to prevent the expense of a repossession. For example, the creditor may accept a reaffirmation agreement without any money upfront if the loan payments were only slightly behind at the time of the bankruptcy. The lender can also erase late fees, lower the interest rate, or take other steps to lower the payment.
Another option is to redeem the vehicle. The debtor may keep their automobile if the lender agrees to take a lump-sum payment. The remaining balance becomes part of the debts discharged. This solution is worthwhile if the balance of the loan is higher than the value of the vehicle, but people need to have enough cash available to make the lump-sum payment.
File Chapter 13 Bankruptcy
Chapter 13 bankruptcy protection may help if the payments were far enough behind for repossession or the repossession took place just before filing bankruptcy. A Chapter 13 filing can prevent the lender from auctioning or selling the vehicle while the court helps the debtor and lender to establish a repayment plan.
Find Another Solution
The automatic stay preserves the vehicle for a couple of months to enable people to find alternative transportation and the fees charged for the repossession become a part of the debts discharged. It is a reasonable solution when the lender refuses to negotiate a new deal and the loan balance is more than the value of the automobile.
Know the Risk
A bankruptcy cannot prevent all repossessions. A lender can ask the court to lift the stay so they can repossess at once. The court will agree if the debtor does not have adequate means to make the payments even after the discharge. A bankruptcy attorney can request the stay remain by showing a need for the vehicle for work or other personal needs.
Not everyone qualifies for bankruptcy protection, and the laws about what property is exempt and what is at risk when people file can be confusing. You should have someone to help guide you through the process for the best possible outcome. Do not wait and let the situation get worse.
Frances H. Hollinger, Attorney at Law, can help people to get the help they need. Contact us if you are at risk of losing a vehicle or home or you are struggling because of wage garnishments or from any of the other effects of overwhelming debt.