Having a vehicle repossessed can be extremely stressful. Especially, if it is a person’s only means to get to work every day. Individuals who have their vehicle repossessed may have options to get their car back if they file bankruptcy. Individuals who find themselves in this type of situation must act quickly to have the best chances of getting their vehicle returned. This article will discuss what repossession is, how bankruptcy can impact a repossession, and whether an individual should get their car back.
What is a Repossession?
When an individual is behind on their car loan, the car lender can take the automobile. Once the lender takes the vehicle this is called repossession. Generally, a lender will take a vehicle from a person if the individual defaults on their car payments and sell the car at an auction to cover the remaining balance on the loan. When this happens, lenders will usually send borrowers a bill for the deficiency amount.
The deficiency amount is the balance on the loan after the car is sold at auction. Many individuals assume that if the lender takes the car, they will no longer have any responsibility to pay the lender. This is not true. Lenders will typically sue borrowers who do not pay the deficiency amount.
Repossession in a Chapter 7 Bankruptcy
Individual’s considering bankruptcy, can use the Chapter 7 process to stop repossession before it happens. When an individual files bankruptcy an Automatic Stay is initiated. The Automatic Stay prevents any creditors from engaging in any collection efforts. Thus, lenders cannot repossess an automobile once the bankruptcy is filed. Any lender who disobeys the Automatic Stay can be severely punished by the Bankruptcy Court.
Individuals should note, lenders can file a motion to lift the Automatic Stay. When this happens creditors can continue collection efforts to pick up the car. Most courts will allow lenders to lift the Automatic Stay in a Chapter 7 bankruptcy unless the individual can find a way to pay off the car, redeem the car or enter into a reaffirmation agreement.
Redeem the Car
Individuals that file Chapter 7 bankruptcy can buy back the car from the lender or redeem the car. When an individual redeems the car from their auto lender, they pay the replacement value of the car. This is beneficial for people who owe more on their car loans than their car is worth. Instead of paying back the full loan on the vehicle, they can pay the actual value of the car. Individuals considering redeeming their vehicles can find the value of their car on www.kbb.org.
Redeeming a car in bankruptcy is not an automatic right. Generally, the lender must agree to redemption and most lenders require a lump sum payment. Filers may investigate redemption funding. This is a new concept where a company will extend a new loan to redeem the car. Individuals considering this route should be on the lookout for very high-interest rates.
Further, redemption must be approved by the Bankruptcy Court. Individuals in bankruptcy must file a Motion to Redeem which must be approved by the bankruptcy judge.
Enter into a Reaffirmation Agreement
Individuals who file bankruptcy can enter into a reaffirmation agreement with their lender. A reaffirmation agreement is an agreement between the car owner and the lender where they mutually agree to new terms. Essentially, it is a new contract that both parties agree upon. Reaffirmation agreements provide an individual a way to restructure their payments. Some lenders allow filers to tack the late payments to the end of the loan or restructure their monthly payments.
Individuals who are considering entering into a reaffirmation agreement should always consult a bankruptcy lawyer to ensure the new terms are fair. Individuals should be conscious before signing a reaffirmation agreement. Filers that reaffirm their car loan debt will remain personally liable for the loan. This means the debt will not be discharged in their bankruptcy. Thus, if the individual falls behind on the loan in the future they will remain liable for the payments.
Once a reaffirmation agreement is filed with the Court it cannot be revoked. Thus, filers must take the necessary steps to ensure they will remain current on their car payments.
What Happens If My Car was Repossessed Already?
Individuals who have their vehicle repossessed before they file bankruptcy, they may be able to get their car back if they choose to file bankruptcy. People in this situation will need to act quickly. Once a lender repossesses a vehicle, they generally try to sell the vehicle within a few days of taking it back. If the vehicle is sold before the individual files for bankruptcy, it is unlikely they will have any chance of getting the vehicle back. Generally, lenders will sell the vehicle within 10 days after it has been repossessed.
One exception to this rule is if the car has equity that cannot be exempt. Non-exempt equity in the property can be taken by the Chapter 7 bankruptcy trustee and sold to pay off creditors. In this case, the lender must return the car because the property is deemed part of the bankruptcy estate. The trustee assigned to the case will determine what happens to the non-exempt vehicle. Sometimes a trustee will opt not to take the vehicle even though it is non-exempt, however, it is very rare.
Getting Back a Repossessed Car in a Chapter 13 Bankruptcy
In Chapter 13 bankruptcy, individuals have more options to keep their vehicles. Chapter 13 bankruptcy allows individuals to enter into a 3-5 year repayment plan. Individuals who are behind on their car payments can pay their arrears through the plan without worrying about their lenders coming after them. To enter a Chapter 13 repayment plan, individuals will need to show the court that they can make their regular monthly payments and pay their arrears through the plan. This can get very expensive and it may not be a good decision for individuals to save their car. Instead, they may be better off giving the vehicle up.
Should I Try To Save My Car?
Individuals considering bankruptcy to get back a repossessed vehicle should consider whether it makes financial sense to do so. Often, the vehicle is worth much less than the outstanding loan. Individuals who are struggling financially may be better off letting go of the vehicle. People can file bankruptcy to get rid of any outstanding balance on their car loan in a Chapter 7 bankruptcy and not be held responsible.
individuals should consider whether they will be able to continue to stay on top of their monthly payments if they get the car back. Generally, most individuals who are already struggling, cannot afford to keep making payments especially, when they are already behind.
If the car payments are high it may make more sense for the individual to file a Chapter 7, if they qualify, and get a new car after the bankruptcy. Many people are under a misguided impression that filing bankruptcy will stop them from getting another car loan. This is not true. Most lenders are willing to extend loans to people who have a history of bankruptcy.
Generally, individuals who immediately apply for car loans right after receiving their bankruptcy discharge will need to do a little extra work to get approved. Some may require a bigger down payment or a co-signer. Individuals should be wary of predatory lenders that may take advantage of the fact that it can be more difficult for someone to get a loan right after bankruptcy. It is important that individuals considering taking out a new loan take proactive steps to rebuild their credit after filing.
Speak with a Bankruptcy Lawyer
Individual’s who are facing a repossession may want to contact a bankruptcy lawyer to help them decide what steps they should take. Individual’s must act quickly to not lose any protections they may have available to them under the bankruptcy process.
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