Managing Auto Repossession Threats in Bankruptcy
Although the ANH Legal Group seldom hears from people whose greatest financial concern involves a past-due car loan, most of our consumer bankruptcy clients need to decide what to do about debts secured by cars, trucks, SUVs or other motor vehicles.
Even though other financial pressures were far more important factors in the decision to file for bankruptcy relief, many of our bankruptcy clients appreciate the opportunity to improve their financial situation by taking a hard look at their car notes. Contact the ANH Legal Group in Los Angeles, Orange County or the Bay Area to discuss your situation with a bankruptcy lawyer.
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If your vehicle serves as collateral to a creditor, bankruptcy will prevent repossession from the moment your petition is filed. Nevertheless, the creditor will have the chance to get bankruptcy court permission to repossess the car if you can't work out an agreement to cure arrearages.
You basically have three options for dealing with a car loan in bankruptcy: (1) surrender the car to the creditor, (2) reaffirm the debt and cure the arrearages either in a Chapter 13 plan or Chapter 7 reaffirmation agreement, or (3) refinance the car at its actual value and buy out your secured creditor.
Before you start considering these options seriously, you should decide how much you want to keep your car in the first place. If you surrender the vehicle, you'll get a discharge of any excess owed over its actual current value. For some people, that's a substantial benefit all by itself.
Reaffirming the debt will make good sense if you like your car and can afford the regular monthly payments. If you're not that happy with the vehicle to begin with, surrendering it as an alternative to repossession may look like a better alternative.
The third approach, refinancing the vehicle at the current value, is a more realistic option than you might think. There exists a network of lenders that specialize in what's known as Section 722 redemption financing.
These lenders take advantage of the fact that in bankruptcy, you're entitled to the discharge of any car loan debt that exceeds the actual value of the vehicle. They'll make a loan at that amount, which in many cases results in a significantly lower monthly payment than you're making right now, and your original creditor will be out of the picture.
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If you don't like the interest rate, you don't have to make the deal. If Section 722 redemption financing can work for you, however, it's an alternative that's worth looking into. To learn more about your options, contact an attorney for a free consultation at any of our law firm's four California locations.
We are a debt relief agency. We help people file for bankruptcy relief under the U.S. Bankruptcy Code.
