Bankruptcy can get your repossessed car back
Image Source: Flickr User Emran Kassim
Are you behind on your vehicle loan to the extent that your lender is threatening repossession or has recently taken your car away? You may think that your only option to get your car back is to scrape up a stack of cash. But, in many cases, this is not your only recourse to keep or get your car or truck back. Both Chapter 7 and Chapter 13 offer options to distressed consumers that are struggling with their debts and need to rescue their vehicle from repossession. In this two-part series, we'll show you how the most common consumer bankruptcy chapters can help. Today, we'll take a look at Chapter 7 and, tomorrow, Chapter 13.
Use Chapter 7 to Get Your Repossessed Car Back
If your lender is threatening to take your car but hasn't yet, filing Chapter 7 bankruptcy will temporarily shut down collection efforts – including repossession. That stay will last 90 days (give or take) and, after that, eligible debts will be discharged. But you'll have to work out something with your lender to keep them from knocking on your door on day 91 to take your vehicle.
Even if your lender already took your vehicle, the stay will prevent them from selling it. They must halt all actions until the stay ends – unless they appeal to the court to lift the stay. You have three options to deal with your delinquent car loan in bankruptcy:
#1 Negotiate with your lender – Depending on the age and mileage of your car, your lender may be willing to modify your loan agreement. They might adjust your interest rate, lower your principal or wipe out some of the late fees to make the loan payments more affordable. They could also tack your delinquent payments onto the end of your loan to bring you current. But they may ask that you reaffirm the debt as part of this process. Once you reaffirm, though, the car loan won't be part of your bankruptcy filing.
#2 Redeem the vehicle – If you can borrow or have a bit of cash on hand, you may be able to redeem your vehicle. The Bankruptcy Code allows you to pay your lender the fair market value (FMV) of your car to purchase it free and clear of the loan. For instance, if your car loan balance is $6,000, but the fair market value of the vehicle is just $2,500, you can pay the FMV and keep the car. However, you'll have to be able to pay it in a lump. Likely no lender will allow you to negotiate a redemption price then pay it over time.
#3 Abandon the vehicle – If your car has a high FMV that you can't afford to redeem, and your lender won't negotiate, you should be prepared to surrender the vehicle at the end of your bankruptcy stay. You can abandon the car, and the associated loan will also be wiped out as part of your bankruptcy. Once your credit starts to rebound, you should be able to get another car loan. If you have enough cash to buy a cheap used car, have access to public transportation, can borrow a car or carpool, that is likely preferable to trying to keep a car you can't afford.
Tomorrow, we'll show you how a Chapter 13 bankruptcy can help you get your repossessed car back.
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