When someone is behind on his or her car payments, a Chapter 7 bankruptcy case may allow him or her to catch up on these missed car payments, saving the vehicle from repossession. The ability to do this depends on how far behind the borrower is on his or her payments and whether the loan is already in default.
While a Chapter 7 bankruptcy case will not permanently prevent the person’s vehicle from ever being repossessed, it can provide the borrower a chance to catch up on missed payments or negotiate with the lender before the loan goes into default.
This moment of reprieve is offered through the bankruptcy’s automatic stay. Whenever a bankruptcy case is filed, the court issues an order known as the automatic stay. This stay puts a pause on all collection efforts on debts held by the filer, including collection on past due car loan payments. The automatic stay goes into effect immediately upon filing and lasts throughout the duration of the bankruptcy case. During this time, the lender cannot repossess the filer’s vehicle.
A Chapter 7 bankruptcy case normally takes a few months to complete so the automatic stay does not give the borrower an indefinite period of time to work with the lender. If the filer is not able to reach an agreement with the lender, once the bankruptcy case is closed, the lender is free to move forward with repossession.
Many lenders are very willing to work with the borrower to catch up on car payments. Because a car’s value drops significantly after it is purchased and the legal costs that are associated with pursuing a repossession, the lender would rather receive full payment than chase after payment through a repossession.
Many borrowers have success in negotiating new loan terms during a Chapter 7 bankruptcy case. By doing this, both parties can achieve the goals they want, allowing the borrower to keep the car and avoid repossession and allowing the lender to continue to receive payment through new loan terms. Negotiations could result in either a reduced balance or a lower interest rate.
Many lenders are willing to reduce the principal amount owed or the amount of the payment if they are aware that bankruptcy is impending. Due to the fact that car values decrease so sharply after the vehicle leaves the lot and the legal costs associated with pursuing a repossession, it is always a good idea to approach the lender to see what they will be willing to do in terms of working with the borrower.
If you have questions on this topic or are in financial crisis and considering filing for bankruptcy, contact an experienced Miami bankruptcy attorney who can advise you of all of your options. As an experienced CPA as well as a proven bankruptcy lawyer, Timothy Kingcade knows how to help clients take full advantage of the bankruptcy laws to protect their assets and get successful results. Since 1996 Kingcade Garcia McMaken has been helping people from all walks of life build a better tomorrow. Our attorneys’ help thousands of people every year take advantage of their rights under bankruptcy protection to restart, rebuild and recover. The day you hire our firm, we will contact your creditors to stop the harassment. You can also find useful consumer information on the Kingcade Garcia McMaken website at www.miamibankruptcy.com.