Most people cannot afford to outright purchase a vehicle when they need transportation. Vehicle prices have risen in recent years, making financing the best solution in many cases. People can obtain loans that allow them to buy a vehicle now and pay it off over the next few years. The issue with such arrangements is that the vehicle itself serves as the collateral property for the loan.
If someone misses payments, the lender could repossess their vehicle. There are many challenges for those facing vehicle repossession. Obviously, repossession deprives someone of their transportation, which may make them unable to get to work or take care of the needs of their family members. They could potentially lose what they have already invested in the vehicle.
Beyond that, there is the social embarrassment of repossession, which could take place at someone’s home or their place of employment. A personal bankruptcy filing could theoretically help someone avoid the repossession of their vehicle. How can bankruptcy help?
The automatic stay
Every financial institution that provides vehicle loans includes unique terms in loan paperwork. Some lenders may initiate repossession after a single missed payment. They typically do so without providing advance notice to the borrower. Anyone who has fallen behind on payments could be at risk of losing their vehicle with little notice. If someone files for bankruptcy after they miss a payment but before the lender physically assumes possession of the vehicle, they could prevent repossession. The automatic stay that the courts issue when someone files for bankruptcy temporarily prevents collection activity.
People can allow filers to renegotiate loan terms
Lenders can lose money through repossession, so they may agree to cooperate with someone who has filed for bankruptcy. A Chapter 13 bankruptcy, in particular, puts someone in a good position to ask for small adjustments to their vehicle loan. They could lock in a lower rate or extend the duration of the loan to reduce monthly payments. Even arranging to move missed payments to the end of the loan could put someone in a position where they can get their loan back into good standing so they can continue to use the vehicle.
Filers can rebalance their budgets
While someone typically cannot discharge a secured debt while retaining the collateral property, bankruptcy does allow them to eliminate certain unsecured debts. Doing that can free up more of their income to cover other necessary expenses, including vehicle payments every month.
Individuals who are worried about vehicle repossession may want to consider a bankruptcy filing as one of the options for resolving their current financial hardship. Proactively protecting major assets, like a financed vehicle, can help someone bounce back from economic hardship more effectively.