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Car Repossessions and Bankruptcy

One of the most unpleasant things that can happen when you fall behind on your bill payments is when the holder of your car loan threatens to repossess your car. Filing for either Chapter 7 or Chapter 13 bankruptcy can stop a repossession from happening. When you file for Chapter 7 or Chapter 13 bankruptcy, you are immediately protected by the automatic stay, which is a legal term that means that most creditors have to stop their collection activities in their tracks. Note, however, that the automatic stay does not protect you from collection activity for debts you incur after you file for bankruptcy, or if you fall behind on your payments after you file.

A car repossession can mean many negative consequences for you and your family. Besides taking the vehicle, car lenders will often sue consumers for the deficiency on the car note after they repossess the vehicle. This means the car lender will take the value of the car, which is in many cases worth much less than the amount of the loan, deduct it from the total loan balance, and sue you for the remainder. This can result in the lender obtaining a judgment, which gives the lender more options to collect against you, including garnishing your wages or your property.

Filing for Chapter 13 bankruptcy, which is a payment plan over a period of three to five years, can allow you to catch up on your missed car payments, letting you keep your car. The lender cannot repossess your car while you are in your Chapter 13 payment plan if you continue to make your car payments. The lender will be required to accept your payments for your car loan arrears and allow you to keep your car. There are income and budget requirements for Chapter 13 bankruptcy that we can help you navigate.

If you file for Chapter 7 bankruptcy before your car is repossessed, you may be able to work out a deal with the car lender if you reaffirm your debt on the car. Reaffirmation agreements are arrangements with car lenders that lead to your debt with the car lender not being discharged in bankruptcy. For this reason, reaffirmation agreements can be risky, especially if you are on a tight budget and were having trouble making your car payments in the first place. Another option in Chapter 7 bankruptcy is surrendering your vehicle. This means you give your car back to the lender, but the lender cannot sue you for any deficiency on the loan. A final option is to redeem your vehicle, if you qualify. Typically, redemption is an option if your car is worth much less than the car loan. You either have to pay the car lender the full amount of your car’s value in one lump sum, or use a reputable redemption financing company to switch out your loan to one with more favorable terms for you. Fortunately, our office frequently works with such a reputable redemption financing company. Contact us today for more information.

Facing a repossession is never a pleasant prospect. We may be able to help you. Call us for help if you are feeling financially distressed.



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