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How bankruptcy can stop the repossession of a vehicle

On Behalf of | Jul 25, 2023 | Bankruptcy

People file for bankruptcy for many different reasons. Sometimes, what they need is immediate relief from aggressive collection efforts. If someone falls behind on credit card payments, for example, a company might sue them in an effort to garnish their wages.

When what someone owes is a secured debt, a creditor will likely take legal action against the collateral property. If someone has financed the purchase of a vehicle, for example, their vehicle is the collateral for the loan. Lenders can repossess vehicles without advance warning in many cases, leaving someone without transportation to work or the ability to meet the needs of their dependent family members.

Those who have missed car payments may worry that their vehicle is at risk. How can personal bankruptcy help those who are hoping to avoid repossession?

Bankruptcy can delay or prevent repossession

Lenders have to follow the law regarding how they attempt to collect on a debt. Someone who has filed for bankruptcy receives an automatic stay or a temporary halt to collection efforts. Lenders that provide vehicle loans and other creditors will not be able to continue collection efforts unless they go to court to ask to have the automatic stay lifted or their account excluded from the bankruptcy proceedings. If someone files before the lender takes physical possession of the vehicle, the automatic stay can help them retain possession of the vehicle.

Bankruptcy can facilitate better loan terms

In a Chapter 13 bankruptcy, lenders have more of an incentive to cooperate with the person filing and renegotiate their debts. Someone pursuing a Chapter 13 bankruptcy while in arrears on a vehicle loan might be able to negotiate a longer repayment period and lower monthly payments.

Even those filing a Chapter 7 bankruptcy who simply hope to retain their vehicles may have a better chance of doing so. The discharge of their other debts will put them in a better position to make on-time payments on the vehicle loan in the future. Having fewer financial obligations will also mean that it is easier to balance the budget each month and prioritize making key payments, like the payments on a vehicle loan.

Understanding how bankruptcy can help to prevent repossession may benefit those struggling with debt and worried about losing their car or truck. Seeking legal guidance is a good way to secure informed, personalized guidance in this regard.