Bankruptcy Can Stop a Car Repossession
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You need your vehicle to get to work, take your children to school, and get to and from various appointments. Without your vehicle, you could lose your job and your children will suffer. Protecting your vehicle from repossession is difficult when you are experiencing a financial crisis that makes paying your car payments difficult. Filing bankruptcy can avoid repossession and help you keep your vehicle.
Can You Avoid Repossession?
Bankruptcy is designed to protect you from creditors when you are unable to pay your bills. You may be experiencing financial problems due to unexpected illness, the loss of a job, a divorce, or the failure of a business. Regardless of why you are unable to meet your financial obligations, even if it is due to unwise money management, bankruptcy provides the debt relief you need in order to recover and rebuild your finances. Bankruptcy also helps debtors avoid repossession, foreclosure, and collection lawsuits in order to protect assets.
A secured creditor is a lender that has a lien on certain collateral to secure the money you borrowed from the lender. If you fall behind on the payments for this debt, the lender will take action to repossess the collateral. Unless you are able to catch up the payments on the account, you will not be able to avoid repossession. On the other hand, if you stop paying unsecured debt, such as credit card bills or medical debt, the only option available to an unsecured creditor when collection efforts fail is to file a lawsuit to collect the debt.
The lender for your car loan will repossess your vehicle, sell it, and apply the funds to the debt that you owe. If the lender does not receive sufficient funds to pay the debt in full, the lender can sue you for the remaining balance owed on the account. This could put your other assets in jeopardy.
Filing Chapter 13 Bankruptcy Avoid Repossession
Filing a Chapter 13 bankruptcy immediately stops any repossession efforts by the lender. The automatic stay provisions of the Bankruptcy Code prohibit creditors from beginning or continuing any type of collection effort after the filing of a bankruptcy case, including but not limited to, repossessing a vehicle. Filing a Chapter 13 avoids repossession; however, you must include the debt in your Chapter 13 plan if you intend to keep the vehicle.
When you file a Chapter 13 case, you must file a proposed plan of reorganization. Your car payments are included in your plan payment each month. The Chapter 13 trustee uses the funds you pay each month to pay your creditors according to the terms of the confirmed plan. In many cases, you can lower the interest rate paid on the car loan and, in some cases, you may be able to “value” the debt owed on your vehicle.
For example, if you owe $10,000 on your car loan but the market value of the car is $7,000, it may be possible to value the lien at $7,000. If so, the remaining balance of $3,000 is scheduled as unsecured debt and paid the same percentage as other unsecured creditors. In order to determine if this is possible in your case, you must consult an experienced bankruptcy attorney.