The COVID-19 pandemic has derailed the budgets of millions of Americans. Whether you lost your job, became overwhelmed with medical bills, or experienced any other financial upheaval, your bills might now be impossible to pay.
As a result, you may be experiencing constant calls from creditors and even the threat of losing your property. If you are struggling to make car payments, for example, your vehicle may be on the line.
How Does Repossession Work?
When you take out a loan to buy a car, the loan is secured by the vehicle. In other words, the lender has the contractual right to repossess (i.e., take back) your car if you fail to make payments.
In most states, repossession can typically occur as soon as you miss a payment, and your lender can probably seize your car without taking you to court or even warning you first. Your specific contract should dictate the exact details of what your lender can and cannot do.
You do, however, have certain rights regarding repossession. For example, the lender cannot breach the peace (i.e., use physical force, remove the car from your closed garage without your permission, etc.). Additionally, they cannot keep any personal items that were in the car when they repossessed it.
Unfortunately, repossession may not mean the lender is out of your hair. If the lender sells the car for less than what you owed, you will most likely be liable for the deficiency balance, meaning the difference between what you owed and what the lender secured through the sale. Your lender may then sue you for that balance.
This situation is exhausting, expensive, and unfair, but it is not inevitable. If you’ve fallen behind on payments, you may have several options at your disposal—but you will need to act quickly.
How to Avoid Repossession
Preventing a repossession is almost always easier than getting the car back or disputing the repossession.
To avoid this entire process, you may consider:
- Speaking with your lender. They may accept a late payment or even adjust the payment schedule.
- Surrendering the vehicle. You may avoid extra costs if you give up the car voluntarily. This is because borrowers are usually liable for the cost of the repossession process. However, you will want to explore all your options before giving up your car.
- Filing bankruptcy. Chapter 13 is particularly useful for individuals who need relief from debt and want to avoid losing their property.
Many people avoid bankruptcy at all costs, but it is a powerful debt-relief process that makes an enormous difference for hundreds of thousands of people each year.
How Can Chapter 13 Stop Car Repossession?
Chapter 13 bankruptcy is one of the two most common types of bankruptcy. If you file Chapter 13, you will make monthly payments to the bankruptcy trustee for 3-5 years. Once you complete this payment plan, the bankruptcy court can discharge any qualifying debts that your plan did not cover. This may include credit card debt, a repossession deficiency judgment, medical bills, unpaid rent, and more.
Chapter 13 can also discharge your liability for a mortgage or automobile loan, but the discharge will not prevent the lender from seizing your property after your case is over. This is why many people use Chapter 13 to catch up on delinquent payments and keep their property (rather than discharge the entire balance and lose the car).
For example, let’s say you file Chapter 13 bankruptcy after falling behind on car payments. Bankruptcy triggers a court order called the automatic stay, which will prevent your lender from repossessing your car as soon as you get a case number. If you continue making payments and cure the default by the end of your plan, you will likely be able to keep your car.
You might even be able to cramdown your automobile loan. A cramdown is when the court reduces a loan balance to the fair market value of the property. If, for example, you owe more on your auto loan than your vehicle is worth, the bankruptcy court may cramdown the loan so you only owe the value of your car.
If you’re interested in learning more about bankruptcy and how it might improve your financial circumstances, get in touch with an experienced professional today.
Bring Your Questions & Concerns to Our Team
At Wisehart Law, PC., we work closely with clients to help them protect their property, eliminate their debt, and build a more secure financial future. Bankruptcy is a highly effective way to accomplish these goals, and our attorney has years of experience using bankruptcy to drastically improve his clients’ lives. If you are struggling to make ends meet or pay off debt, let’s take a look at your situation and begin developing a customized plan as soon as possible.