Automobile dealers and lenders like to try and scare people into scrambling to make up behind payments by threatening to repossess a vehicle. Don’t let yourself be fooled.
When you are behind on payments and don’t know how to make them up, filing bankruptcy can give you more time to figure out how to get caught up on your payments. When you file for bankruptcy, the court will issue an order called the “automatic stay.” This is a fancy way of telling your creditors that they have to stop trying to collect money you owe them while the court hears your bankruptcy petition. If creditors continue harassing you after the automatic stay has been issued, they can be sanctioned and fined with hefty penalties. While some creditors don’t know about the automatic stay, we’d be more than happy to write a strongly worded letter to educate them about how they’re no longer allowed to pester you.
Filing bankruptcy won’t necessarily stop all attempts at repossessing your vehicle, though. In some cases, a lender can ask the bankruptcy court for permission to take the vehicle back. However, most lenders don’t understand the process for doing this, and we can help you fight the process.
While bankruptcy can wipe out your responsibility to pay back your loan on a car, it doesn’t always get rid of the lender’s lien on the car (see our main bankruptcy page for more information on getting your debts discharged). What this means is that even though you no longer have the responsibility to pay the lender, they can still take back possession of the car. The upside is that filing for bankruptcy can buy you some time before repossession, and give you some leverage to renegotiate the terms of your loan. Most lenders would rather get some of the money you originally owed them than go through the trouble of repossession and reselling the vehicle. Note that to get a better deal on your original loan you have to “re-affirm” the debt, which wipes out any discharge the bankruptcy court may have issued, which means you are now personally responsible for the loan again.
Additionally, redeeming the car might be a good option for some debtors. Oftentimes, the market value of a car is less than what people still owe on the vehicle. If that is the case, you can “redeem” the vehicle. That means that you can pay the market value of the car in one lump sum and wipe out your existing loan responsibility. For example, if you still owe $20,000 on a car, but the market value of the car is currently only $10,000, if you can somehow come up with the $10,000, you can wipe out your responsibility to pay the $20,000. Obviously, this isn’t an option for a lot of people who are in bankruptcy, but it can be an attractive option for some.