Is The Repo Man Coming For Your Car? Bankruptcy Can Help
March 1, 2023
In Florida, missing even one scheduled car payment by 30 days can start the repossession process and put you at risk of having your car seized. Time is of the essence if you want to stop the repossession of your car (or boat, motorcycle, or other vehicle). Bankruptcy can help by providing an automatic stay that stops all collection activities, including repossession. But once your car has been repossessed, bankruptcy may not get your car back.
The automatic stay that bankruptcy provides only prevents a lender from taking your car. It does not force them to return the car to you after it has been repossessed. So that old saying about possession being 9/10ths of the law, is closer to 100% once the bank has your car.
If you are at risk of defaulting on your car loan, you need help ASAP, and at BransonLaw, we can provide it. We have helped many clients protect their assets, particularly their vehicles, enabling them to get a fresh start and to continue having transportation for work and other life activities. But you must act quickly. Call us today if you know that you are unable to make your car payment.
Your Car Can Be Seized Without Warning
Many people think they will get some warning from the lender that repossession is imminent, but that’s not true. The lender can seize your car without warning and without going to court. However, the lender might give you the opportunity to voluntarily surrender your vehicle if you are behind on the payments. So, if you get a notice about the opportunity to surrender your car voluntarily, take the hint. Repossession is probably in your near future. Call the bank to discuss payment alternatives, and call BransonLaw immediately to see whether bankruptcy is the best option for you—before they take your car.
How Bankruptcy Can Help
Filing for bankruptcy puts an automatic stay in place that stops car repossession and all credit collection efforts against you, at least temporarily. This applies to all your debts and property while the automatic stay is in place.
Both Chapter 13 bankruptcy and Chapter 7 bankruptcy have advantages and disadvantages, depending on the outcome you want. Whether you want to keep the car or get rid of any deficiency balance you owe can determine which form of bankruptcy to use. At BransonLaw we will assess your unique situation and recommend the best form of bankruptcy for you.
Benefits Of Chapter 13 Bankruptcy
A Chapter 13 bankruptcy is often the best choice if you want to keep your car. A Chapter 13 bankruptcy can:
· Cure any defaulted payments over the plan. In Chapter 13, depending on the plan, you can have up to five (5) years to either cure the delinquency or pay off the car loan. That can often mean lower, more affordable payments spread over a longer time, allowing you some breathing space to catch up on the payments.
· Value the car and pay the current market value, not the loan balance. The difference becomes unsecured and treated like a credit card or medical debt. This is sometimes called a “cramdown.” This only applies to vehicles purchased at least 910 days (about 2.5 years) before filing for bankruptcy or non-consumer debt (the vehicle is used for “business” purposes). Cramdown is especially helpful if you bought your car at the height of the pandemic. Car prices were higher then because supply was low, forcing people to take out bigger loans.
· Reduce high interest rates to prime, plus 2%. Although the law doesn’t set the rate at prime plus 2%, this is generally what parties agree to in Chapter 13 bankruptcy. The current prime rate is 7.7%, so prime plus 2 % would be 9.7%. Remember that the prime rate changes regularly based on several factors and may be higher or lower than 7.7% at the time of bankruptcy debt restructuring.
· Surrender the car and discharge any deficiency upon successful plan completion.
Benefits of Chapter 7 Bankruptcy
A Chapter 7 bankruptcy is often the best choice if you want to get rid of the car and wipe out your debt, or if you can find the funds to “redeem” the vehicle. A Chapter 7 bankruptcy can:
· Redeem the car for what it is worth (this is another form of cramdown). However, the redemption has to be done within 30 days of the judge placing the “value” of the vehicle. In other words, if you owe $10,000 on the car, and it is only worth $3,000, $7,000 in debt would be discharged, and the $3,000 the car is valued at would need to be paid within 30 days. There are companies that will lend the debtor money to redeem the car, depending on the age of the vehicle, your credit score, and your ability to pay payments. Unlike the cramdown in Chapter 13 bankruptcy, you are not required to have owned the car for 910 days.
· Reaffirm the debt, which means keep the debt and either keep the same terms or restructure the loan, lowering the rate and term; however, restructuring the debt is only available if the creditor agrees to restructure the loan.
· Surrender the car and discharge any deficiency. In other words, the debt is forgiven, even if the lender has a judgment against you.
It’s Not Just About The Car: The Cascading Effects Of Repossession
Your car being repossessed is just the beginning of a cascade of financial consequences. For many people, having reliable transportation is an essential part of being able to support themselves, not to mention getting to doctor's appointments, picking up children from school, and many other crucial activities in our car-centric culture. Losing your car can mean losing your job.
If your car is repossessed, you may be liable for additional repossession-related fees. Your credit score can drop, making interest rates more costly for future car loans and other types of loans. And you may also pay high costs for alternate transportation, such as taxis or ride-sharing services.
“Voluntary Repo”: Giving The Car Back And Walking Away—Don’t Do It
While that may sound good in theory, it doesn't let you off the hook. Once your car is repossessed, whether through voluntary surrender or a seizure, the lender will attempt to sell your car to recover the loan amount. If the car sells for less than what is still owed on it—which can be thousands of dollars—the bank will demand that you pay the difference, also called the deficiency. If you can't, the bank will likely sue to recover the balance, plus legal fees, interest, and late penalties. The bank can also garnish your wages and put liens on other property of yours to get its money.
In short, don’t do it. Bankruptcy provides a way to discharge the debt and avoid collection action by creditors without risking your wages, assets, and credit score.
BransonLaw Can Help
At BransonLaw we have helped many clients who are having trouble paying bills, including car loans. Do not delay in calling us if you are at risk of missing a car payment. We can help you. We can assess whether you would benefit from bankruptcy, and we can explore which form of bankruptcy would be the most helpful in discharging your debts and getting in better financial shape.