Today where many areas have a lack of public transportation and people tend to have long commutes to or from work, a car is not just a valued possession, but it can be the determining factor on whether a person is able to get to and from work, school or even access necessary medical treatments. When you are already in debt and behind on the payments, the thought of losing your car can be a daunting situation to face.
Vehicle finance companies often take vigorous steps to collect payments that are owed, and in many cases, they forge ahead with repossession the first time a customer misses a payment. Others will wait for 30 days or longer before moving forward with trying to repo a car. Many companies will take your payment history into account and will work with you to get caught up on the bill you have missed, and while this is great, there are many who unfortunately find they just cannot get caught up in time.
For a car owner who is facing a repossession, the fear of waking up and finding no car in the driveway can be a major cause of stress. If this is something you are worried about, you can take legal steps to avoid the repo man and keep your car, or at least buy yourself a little time to make alternative transportation arrangements.
Understanding Automatic Stay Provisions
Bankruptcy is a powerful weapon to have on your side when it comes to stopping a creditor from collection action against you with a lawsuit or a repo truck. When you file bankruptcy, you legally have what is called an “automatic stay” which essentially means creditors must halt all collection activity against you including phone calls, postal mailings, email or repossession attempts.
Per Section 326 of the United States Bankruptcy Code, the automatic stay begins as soon as the bankruptcy petition is filed with the court. Vehicle creditors can file a petition for relief of the stay, so they can continue collection efforts, but they must show cause and even this can take time. For cars, if the creditor can show that the debtor has not maintained proper auto insurance on the vehicle, the court may see just cause and lift the stay. This is a matter that you will need your bankruptcy attorney to handle.
Filing Chapter 7 Bankruptcy
When you decide to file Chapter 7, you will need to determine whether you want to keep your car, along with the payments you may not find affordable, or relinquish the car to the creditor. To keep the car, you will most likely need to get caught up on any missed payments and in many cases, creditors will only allow a 30-day period to catch up. You may find more flexible times with local, buy here pay here car dealerships where the actual car value is well below the amount you owe. To do this, you must sign a reaffirmation agreement and it will need to be filed with the bankruptcy court before any of your debt is discharged.
The reaffirmation agreement will exclude the car from the debts to be discharged. You will most likely need to either be caught up on payments by the time your bankruptcy goes to court, or you will be expected to be fully caught up within a couple months after filing bankruptcy.
Surrendering the Car
Another option you will have, and one that many debtors take, is to surrender the car to the lender. This of course means you will need to either find other transportation, but the benefits of surrender may be what works best for your overall situation. If you are past due on the car payment and know you just cannot afford the amount each month, it is best to surrender rather than find yourself in an endless cycle of debt you cannot afford.
There are a few advantages of surrender and these include:
- No more monthly car payments to worry about.
- No insurance cost associated with the car.
- No deficiency balance owed. (Without bankruptcy, a lender can charge a debtor the amount owed after the car is sold at auction)
- No more harassing collection calls at home or work.
Unless you live in a city where public transportation is easily accessible at all hours, having a car is a necessity rather than an option. If you have a great deal of unsecured debt such as credit card debt or medical bills, eliminating those can be a great option to allow you to reaffirm your car loan and continue making your payments. Facing repossession is scary, but with a good bankruptcy attorney on your side, it does not have to be.
If you are facing debt that you just cannot handle, be sure to reach out to a local bankruptcy attorney who can help guide you down the best path to resolve your financial woes.