Are you behind on your car payments? Do you need to stop vehicle repossession? If so, then read on.
Stop Vehicle Repossession
When you purchase a vehicle on credit, you agree to give the lender a security interest in the vehicle. Ideally, you make timely payments on the note, and when you make your final payment, the security interest is extinguished and you own your vehicle free and clear. If you default on your payments, the lender may seek to repossess your vehicle. People default on their payments for many different reasons, such as temporary unemployment, medical bills, garnishments, emergencies, etc.
What happens after a repossession depends on the individual lender, but the most common action is a sale at auction. Whatever is left over is called a deficiency and the borrower is responsible for this. A lender will almost certainly attempt to collect on this deficiency through direct payments, turnover to a collection company, or seeking a judgment in court, and ultimately a garnishment. It is important to stop vehicle repossession before it starts.
How can a Chapter 13 Bankruptcy help?
When a bankruptcy is filed, the first thing that goes into effect is something called the automatic stay. This is perhaps the most powerful aspect of a bankruptcy, and is found in section 362 of the bankruptcy code. It prevents creditors from enforcing a lien or taking possession of property. The Automatic Stay will stop vehicle repossession. Furthermore, if the vehicle was repossessed, but not yet sold, the property is part of the bankruptcy estate and must be turned back over.
What else can Chapter 13 Bankruptcy do besides stop vehicle repossession?
Many folks I talk to have got trapped in high interest rate car loans or even worse, title loans. If this is the situation, a Chapter 13 Bankruptcy will allow the borrower to modify, or restructure some terms of the loan. First, the loan can be paid back between three to five years, which could stretch out the loan and reduce the payments. Second, the loan can normally be paid back at 4.75%, which is commonly known as the “Till Rate” (see TILL et ux. v. SCS CREDIT CORP).
EXAMPLE: Six months ago you purchased a 2008 Chevy Malibu for $10,000. Your credit is not that great, so your interest rate is 18% and you have 3 years to pay it off. Your payments are $332/month. You were recently off work for a few weeks due to illness and did not get paid. Now you’ve got behind on your payments and the lender is seeking to repossess your car. In a Chapter 13 Bankruptcy, the pending repossession is stopped, and you are able to stretch out your loan to 54 months (4 ½ years) at 5%. Your payments on the car are now around $225/month, saving you over $100/month.
I am paying my car loan back at 5%, is there anything else a Chapter 13 Bankruptcy can do?
Maybe. If you have owned your vehicle for 2 ½ years or more (910 days), then you are eligible to pay the value of your vehicle instead of what is owed. If you are upside down on your loan, or owe more than the vehicle is worth, they you may be able to save some money.
EXAMPLE: Two and a half years ago you purchased a 2012 Chevy Malibu for $22,000. Your credit union gave you a pretty fair interest rate (9%) given your average credit score of 650. Your payments are $456/month. You were recently off work for a few weeks due to illness and did not get paid. Now you’ve got behind on your payments and the lender is seeking to repossess your car. Because the way the interest is amortized, you still owe about $12,200. Chevy Malibus do not hold their value well, and the vehicle is only worth $8,500. In a Chapter 13 Bankruptcy, the pending repossession is stopped, and because you’ve owed the vehicle for 2 ½ years or more, you only have to pay back the value of the vehicle ($8,500) as opposed to what you owe ($12,200). You are able to stretch out your loan to 54 months (4 ½ years) at 4.75%. Your payments on the car are now around $190/month, saving you over $260/month.
I have a title loan. Can Chapter 13 Bankruptcy help me?
Yes. You can pay back your title loan over a 3 – 5 year period, at the current Till Rate (4.75%). Furthermore, you can pay the value of the vehicle versus what you owe. This is particularly helpful because many title loans have extremely high interest rates, and it doesn’t take long for the loan to exceed the value of the vehicle, especially if a payment is late or missed altogether.
EXAMPLE: You own a 1996 Toyota Corolla, valued at $1,000. Six months ago, you got a $1,000 title loan, with 300% interest. You have missed a couple payments and now owe $1,800 and are facing repossession. In a Chapter 13 Bankruptcy, the pending repossession is stopped, and you only have to pay $1,000 over 3-5 years at 4.75% interest to fully pay off the title loan off.
To Learn More About How a Chapter 13 Bankruptcy Can Stop Vehicle Repossession, Call Chris W. Steffens, a Kansas Licensed Bankruptcy Lawyer at 785-379-3600 for a FREE Consultation over the phone, in person or you can email us now
