Cars are very expensive but necessary tools. Even a used car will easily cost you more than $10,000, and a newer vehicle will cost many times that price. Unless you saved up for years before making a purchase or get money from your family members, you may not be able to buy a vehicle outright when you need transportation.
Instead, you will apply for financing with a car loan company or bank and then pay off the loan over the next few years. The problem with financing a vehicle is that the car you depend on to take care of your family and get to work every day is the collateral for your loan.
If you fall behind on payments, the lender could repossess the vehicle and deprive you of the vehicle you depend on and the money you have invested in it thus far. How does bankruptcy support those facing vehicle repossession?
The automatic stay prevents repossession
Once you fall behind on payments, the lender can repossess your vehicle at any time. They don’t need to warn you. You might wake up one morning to get ready for work and then discover your car is no longer in the driveway.
The day that you file your bankruptcy paperwork with the courts, they send out notice alerting the credit bureaus and other interested parties about your filing. All collection activity against you will temporarily stop. Your vehicle lender would have to put off repossessing your vehicle or taking you to court.
You can potentially renegotiate your loan
If you file for Chapter 13 bankruptcy, that will give your lender a little incentive to cooperate with you if you ask to renegotiate certain terms of your loan. Although lenders may work with you even in a Chapter 7 filing, Chapter 13 bankruptcies are especially beneficial for those who want to reorganize some of their debts.
You cannot discharge the debt owed on the vehicle loan without surrendering the collateral property. However, you can reaffirm the loan or potentially renegotiate it after you avoid the lender repossessing your vehicle. Knowing when to file for personal bankruptcy can help you protect your most valuable personal property.