Struggling with Your Car Payments? Bankruptcy Can Stop Repossession.
Our bankruptcy attorneys can stop repossession and in many cases draft a plan that lets you get current on delinquent car loan payments. We have helped hundreds of clients with auto loans. We can also help you decide whether keeping the car makes financial sense or not. And if you want to keep your car, we can advise how filing bankruptcy can help with your car payments. If you are struggling to get current on your car payment and want to stop repossession of your vehicle, then Chapter 13 bankruptcy offers a payment plan that can help you do that.
How Filing Chapter 13 Bankruptcy Can Help With Your Car or Truck Payments
- Stop Repossession. If you are behind on your car payment, and the Repo Man is out to take your car away, then you should know that by filing bankruptcy will stop repossession. Bankruptcy gives you the immediate protection of the Automatic Stay, which stops all collections against you. That includes vehicle repossessions as well as stopping wage garnishments, collection lawsuits, harassing phone calls, etc.
- Cure Default. A Chapter 13 bankruptcy is a payment plan with lots of special tools available to debtors. Our bankruptcy attorneys can craft a Chapter 13 plan that will enable you to get current, little by little on your car loan over the course of 3 or 5 years. All while you are protected from repossession by your auto lender.
- Reduce Payments. In Chapter 13 bankruptcy, we can often reduce the monthly payment to your auto finance company or credit union. How? First, if the interest on your car loan is high, we can reduce the interest rate to the “Till Rate” (which is currently between 4.5%-5.5%). This can significantly reduce the total amount you will pay for your vehicle. Your monthly car payments may also be reduced in Chapter 13 bankruptcy because we may be able to reduce the balance on your car loan!
- Reduce the Balance on Your Car Loan. There are even ways an experienced Chapter 13 bankruptcy attorney can reduce the total amount you owe on your car loan. First, if your car loan is more than two and one half years old (910 days to be exact), then the Bankruptcy Code allows us to “cram down” the balance on your vehicle loan to the present fair market value of the car. So, if you owe $20,000 and the car’s fair value is only $12,000, then in a Chapter 13 bankruptcy, we can reduce the total balance you will pay to $12,000, saving you $8,000 plus all the interest that you would have paid on it! One other way to reduce the balance on your car loan in Chapter 13 is available if your current auto loan includes a balance owed on a trade in vehicle that was lumped together with your present loan. Under a case called Penrod, we can reduce the total you will owe for the car through your Chapter 13 bankruptcy plan.
What If I Just Want to Walk Away from a Bad Car Loan?
Sometimes, it makes sense just to give back a vehicle to the bank. Maybe, the interest on the loan is just too high, you owe way more than the car is worth, the car is a lemon that needs thousands of dollars in repairs, and it just doesn’t make sense to keep paying for your car.
We all know how a repossession goes down outside of bankruptcy. The lender first repossesses your car, then sells it at auction for much less than its value. Then they sue you for the balance—the difference between what you owed on the loan and the low price they got for it at auction. Oh, and they add in attorney fees and other costs of sale.
Under bankruptcy protection, you can surrender a vehicle voluntarily without getting sued for any balance owed.
- In a Chapter 7 bankruptcy, you can elect to keep or surrender the vehicle. If you choose to surrender, and all of any balance you might owe gets discharged along with other debts like credit cards, medical bills, and unsecured personal loans. If you want to keep your car in Chapter 7 bankruptcy, the lender has the right to make you sign a reaffirmation agreement, but many auto lenders do not require this and simply allow you to retain the vehicle as long as you keep making your payments.
- In Chapter 13 bankruptcy, you can likewise surrender a car or other property secured by a loan. You do this by rejecting the contract (your car loan). The lender can still file a proof of claim in your Chapter 13 bankruptcy case for any unsecured amount left unpaid after auctioning the car, but if your Chapter 13 plan only provides for zero or partial payment on such unsecured claims, then the auto lender is bound by the Chapter 13 plan.
We represent San Jose and Bay Area Chapter 13 and Chapter 7 clients with car and truck loans, RV loans, and other secured debts. Call us today for a free consultation!
