Filing for Chapter 7 bankruptcy can be the right solution to help you get back on track, especially If you are unable to pay your bills or have excessive debt.
But what if your car loan is in default? Can filing a bankruptcy claim stop your auto loan or financing company from repossessing your vehicle?
The answer is yes, at least temporarily. But Chapter 7 bankruptcy also provides options that can help you keep your car permanently.
Automatic Stay Can Delay Auto Repossession
When you initially file a Chapter 7 bankruptcy petition, an automatic stay kicks in, offering you immediate protection from creditors and bill collectors. This automatic stay prevents your auto loan lender from legally repossessing your vehicle or even contacting you about the debt.
Unfortunately, a bankruptcy stay will only protect you for the short-term.
Most stays only last a few months at most, and if your lender wants the car sooner, they may file a motion with the court to lift the bankruptcy stay. Unless you can demonstrate to the court that you are trying to catch up on your payments, the judge is likely to allow the lender to repossess your vehicle.
Bankruptcy Gives You Time to Negotiate Car Loan Terms
Though the automatic bankruptcy stay offers only temporary safety from repossession, it provides another important benefit — it gives you time to negotiate with your auto lender.
Most lenders would prefer that you keep your car, as they will make more money if you pay off the balance of the loan with interest than if they repossess the vehicle.
Because of this, your lender may be open to working with you to find a way to cure your loan default and avoid repossession. An experienced bankruptcy attorney can help you negotiate new loan terms, such as a reduction in monthly payments, a decreased interest rate or a reduction of your principal loan balance.
It is important to note, however, that a new loan agreement will be a reaffirmation of your debt. This means that you will be personally liable for the loan, even after your bankruptcy discharge.
Chapter 7 Bankruptcy Allows Fair Market Value for Your Car
Is your vehicle worth less than the balance on your loan?
Chapter 7 bankruptcy gives you the option of redeeming your car, or buying it from your lender for its fair market value. If you redeem your car, you will own it. No more making payments.
The catch? You must be able to make a single lump sum payment to cover the entire fair market price. If you can afford this, your bankruptcy attorney can help you file the appropriate motion with the court and work out an agreement with your lender on the vehicle’s value. Other lenders may be able to finance the single lump sum payment, and your bankruptcy attorney can assist with finding a lender as well.
If you are looking for a viable solution to stop an impending car repossession, we may be able to help. Contact Lewis Adams and Associates of West Jordan, Utah, to schedule a consultation. We will be happy to review your case and help you determine whether Chapter 7 bankruptcy can help you.