Steps You Can Take to Avoid Repossession of Your Vehicle
If you are behind on your vehicle payments, your lender can typically repossess your car at any time. You can suspend a repossession effort with a bankruptcy filing, as you will be entitled to the protection of the automatic stay once you file. The automatic stay prohibits most creditors (including auto lenders and lessors) from calling, writing or taking legal action to collect a debt outside of the bankruptcy process.
The available bankruptcy exemptions can be applied to the equity you have in the vehicle, and if sufficient should prevent its sale by a bankruptcy trustee. If your vehicle is completely paid off, then its fair market value is all equity. If the equity you have in the vehicle is greater than the exemption amount, the trustee may still take your vehicle, sell it to pay off other creditors and give you the exemption amount in cash after paying off the car loan balance.
If you owe money on your vehicle and are facing repossession, there’s little benefit to filing a Chapter 7 petition, as this will only slow the process of repossession, not prevent it. Unless you will be in a position to bring the loan current or “buy back” the vehicle from the lender in a process called Redemption, a Chapter 7 bankruptcy is only a temporary fix.
Your best option if you choose bankruptcy is often a Chapter 13 filing. In a Chapter 13 proceeding, you will have to resume payments on the loan, but can cure the arrears (ie bring the loan current by paying the back payments through a bankruptcy plan) over as long as 60 months.
In Chapter 13, you may be able to “cram down” your loan and pay the fair replacement value over 3 to 5 years. Essentially, you replace the loan with a new loan that pays the value plus interest, so that at the end of the payments you have bought the car back from the lender. This makes sense only if the loan balance substantially exceeds the market value of the vehicle. While this process is underway and so long as you meet the applicable payment requirements and keep the vehicle insured, the automatic stay protects you, so that your lender cannot seek to accelerate the loan or collect more than you have agreed to pay.
Bankruptcy, however, may not be necessary to stop repossession. The first thing you want to do when you have fallen behind on your car payments — or even if you know in advance that you won’t be able to make a payment when it’s due — is to reach out to your lender to see what your options are. Some lenders have forbearance options, which allow you to pay only interest for a short period of time, or even allow you to make no payments for a month or two. Typically, though, interest will accrue during that period. If you reach any agreement, BE SURE that it is documented in writing and that you keep careful records of all payments you have made or will be making.
The other important thing to do when you are struggling to meet your financial obligations is to prepare a detailed household budget. This allows you to compare income to necessary expenses.
Priorities here are important. For most people, having reliable transportation is a top priority. Without a vehicle, you can’t get to a job. If you can’t get to a job, you can’t pay anyone.
Above all, facing up to these problems early and understanding all the options with the guidance of an experienced and knowledgeable attorney is critical.
Contact Neuner & Ventura, LLP
We understand the stress, anxiety and confusion that can be associated with a potential bankruptcy filing. We offer a free initial consultation to every client. We do, however, reserve the right to charge a fee to review any work done by another attorney. For an appointment, call Neuner & Ventura at (856) 596-2828 or send us an e-mail. Evening and weekend appointments are available upon request.
Representing Clients Across South Jersey