Repossession of a car can create immense stress and disrupt daily life. Fortunately, there are ways to stop repossession and gain control over your financial situation. One of the most effective strategies involves bankruptcy. Understanding how bankruptcy works and its implications can help you make informed decisions to protect your vehicle and financial well-being.
What Is Repossession of a Vehicle?
A repossession or a car or any other vehicle occurs when a lender seizes the vehicle due to non-payment of the auto loan. Typically, this happens after a series of missed payments, although the exact timing and process vary by lender and state laws.
Repossession not only leaves you without transportation but also negatively impacts your credit score and may lead to additional financial obligations if the sale of the car doesn't cover the remaining loan balance.
Bankruptcy Can Stop Repossession
Bankruptcy can serve as a powerful tool to halt the repossession process. When you file for bankruptcy, an automatic stay immediately goes into effect. This legal provision temporarily prevents creditors, including auto lenders, from taking collection actions against you. The automatic stay can provide the breathing room needed to devise a plan to keep your car and manage your debts.
Chapter 7 Bankruptcy
Chapter 7 bankruptcy, often referred to as liquidation bankruptcy, involves the sale of non-exempt assets to pay off creditors. However, many people who file for Chapter 7 can keep essential assets, including their car, through exemptions. In Florida, you can protect up to $1,000 of equity in your primary vehicle.
In Chapter 7 bankruptcy, if your car is worth less than the exemption limit or you can exempt the equity in your car, you may keep it, provided you stay current on loan payments. Additionally, if you are behind on payments, Chapter 7 can discharge the debt, but the lender may still repossess the car unless you negotiate a reaffirmation agreement or redeem the vehicle by paying its current value in a lump sum.
You may wish to consider Chapter 7 if other types of debt such as credit cards or medical bills made it difficult to keep up with your auto loan. After discharging those debts, you may find it easier to pay your auto loan on time.
Chapter 13 Bankruptcy
Chapter 13 bankruptcy, known as reorganization bankruptcy, allows you to create a repayment plan to pay off debts over three to five years. This type of bankruptcy can be particularly effective in stopping car repossession and keeping your vehicle across a longer period.
Under Chapter 13, you propose a repayment plan that includes your car loan. If you are behind on payments, the plan will include arrears, which you can pay off over the duration of the plan. This arrangement can make payments more manageable and give you the opportunity to catch up on missed payments. Moreover, Chapter 13 may allow you to reduce the interest rate on your car loan or even the principal balance if the car's value is less than the loan balance, a process known as cramdown.
Reaffirmation Agreements & Redemption
In some cases, you may choose to enter a reaffirmation agreement with your lender. This agreement involves recommitting to the car loan under the original or modified terms. By reaffirming the debt, you agree to continue making payments, and in return, the lender agrees not to repossess the vehicle. It's crucial to evaluate whether reaffirmation is in your best interest, as it means you remain liable for the debt despite the bankruptcy discharge.
Another option is redemption, where you pay the lender the current market value of the car in a lump sum. This approach can be beneficial if the car's market value is significantly lower than the loan balance. Redemption allows you to own the car free and clear of the loan after the payment.
Contact Us for Legal Assistance
If you are facing repossession of your primary vehicle, there are legal options that can help your situation. At Buchalter & Pelphrey, we can provide the experienced legal support you need to understand those options and how they can make your debt more manageable to overcome.
For more information, request a consultation with us by contacting Buchalter & Pelphrey online now.