Car Lenders Are Quick To Repossess. How Bankruptcy Can Save Your Car and
Eliminate Your Debt
How Bankruptcy Can Save Your Car
You can stop the repossession of your car by filing for either
Chapter 7 or
Chapter 13 bankruptcy protection. Once your case is filed, the "automatic stay,"
arises and is essentially a restraining order issued by the bankruptcy
court which prevents your car creditor from repossessing your car regardless
of how much you owe or are past due. But there are big differences of
what you can accomplish with a Chapter 7 or a Chapter 13.
Chapter 7 and Your Vehicle
Immediately upon filing your Chapter 7 case, the creditor cannot repossess
your vehicle. But, there are two issues: (1) personal liability, and (2)
collateral. Chapter 7 will eliminate your personal liability, which means
you don't owe on the debt, but the car creditor has a right to the
collateral, in this case the car, if you don't pay for it. So, during
the case, you will need to
reaffirm the debt, which means placing yourself back into liability;
redeem the vehicle, which means to pay fair market value for the vehicle, or
surrender the vehicle and just get out of debt.
The biggest issue is if you want to keep your car and you are past due.
Chapter 7 isn't the best option for you because you will have to "catch
up" with the payments in a short time period or you will have to
redeem the debt by paying fair market value. Also, you don't get to
make payments on the fair market value; you've got to come up with
cash to pay it in a lump sum. Sometimes car creditors may negotiate a
good deal for you, but more often than not, they want you to catch up
completely and immediately.
Chapter 13 and Your Vehicle
Immediately upon filing your Chapter 13 case, the creditor cannot repossess
your car. Chapter 13 is a good place to be when you're past due on
a car loan. If the car was purchased over 2 ½ years before you
filed your case, you can "cram" down the loan amount. What that
means is you can pay fair market value rather than what you owe. So for
example if you owe $20,000.00 and the car is only worth $10,000.00, you
can pay the $10,000.00 to keep the car. This means you can pay $10,000.00
over a 3-5 year Chapter 13 plan, and not the $20,000.00. Plus, you can
lower the payments and the interest rate. Even better, you don't have
to catch up on payments. Chapter 13 allows you to start fresh with a payment
plan. If your car was financed within the last 2 ½ years, then
you will have to pay the balance, but you won't have to catch up,
and we will restructure the car loan over 3-5 years at an interest rate
that's under 5%.
"My car has already been repossessed"
Although, a Chapter 7 case will stop the continuing sale of your vehicle,
you will have to negotiate with the creditor and possibly have only the
redemption option available to you (again paying fair market value). Chapter
13 is the best place to be as the Creditor will have to return the vehicle
and then you can change the terms of the loan, restructure the loan over
3-5 years, and set a very low interest rate.
"I can't catch up and I don't want the vehicle"
This situation is perfect for a Chapter 7 case. Your personal liability
goes away and you return the car when you're ready during the Chapter
7 process. Generally, the car creditor will sell your car for less than
what's owed and sue you for the balance. But since Chapter 7 eliminates
your personal liability, your entire obligation to repay is wiped out!
If you are struggling with your car debt, feel free to contact my office
to discuss whether filing for bankruptcy protection is the right option
for you. Call the Denton Law Group today at (619) 458-3739 to
schedule a free consultation.