Can Bankruptcy Stop a Repossession

Repossession can be a stressful and frustrating experience. When you finance or lease a vehicle, the lender or the lessor has the right to repossess the vehicle if you default on your payments. If you find yourself facing repossession, you may be wondering if bankruptcy can help. In this article, we’ll take a look at how bankruptcy can help with a repossession.

What is Repossession?

Before we dive into bankruptcy, let’s define repossession. Repossession is the legal process by which a lender or a lessor takes back a vehicle when the borrower or the lessee has failed to make payments.

Repossession laws vary by state, but generally, the lender or the lessor must follow certain procedures before repossessing the vehicle. This usually involves providing the borrower or the lessee with notice of the default and an opportunity to cure the default.

If the borrower or the lessee fails to cure the default, the lender or the lessor can repossess the vehicle. Once the vehicle is repossessed, it may be sold at auction.

If the vehicle is sold for less than the outstanding balance on the loan or the lease, the borrower or the lessee may still owe the difference to the lender or the lessor. This is called a deficiency balance, and it can be pursued in court.

What is Bankruptcy?

Bankruptcy is a legal process where an individual or a business declares that they are unable to pay off their debts. There are two main types of bankruptcy for individuals: Chapter 7 and Chapter 13.

Chapter 7 bankruptcy is a type of bankruptcy that allows individuals to eliminate most of their unsecured debts, such as credit card debt and medical bills. It’s also known as a “liquidation bankruptcy” because the debtor’s non-exempt assets are sold to pay off creditors.

Chapter 13 bankruptcy is a type of bankruptcy where you create a payment plan to pay off your debts over a period of three to five years. It’s less severe than Chapter 7 bankruptcy because you get to keep your assets.

How Can Bankruptcy Help with a Repossession?

Now that we’ve defined repossession and bankruptcy, how can bankruptcy help with a repossession?

First, bankruptcy can temporarily stop a repossession. When you file for bankruptcy, an automatic stay goes into effect. This means that your creditors, including your lender or lessor, cannot take any actions to collect a debt from you. This includes repossessing your vehicle. The automatic stay doesn’t last forever, though. It’s usually lifted after a few months. However, this can give you time to work out a plan with your lender or lessor.

Second, bankruptcy can help you catch up on payments. If you’re behind on your car payments, you can use Chapter 13 bankruptcy to create a payment plan to catch up on those payments over three to five years. In addition, you may be able to eliminate other debts through bankruptcy, which can help you free up money to make your car payments.

Third, bankruptcy can help you avoid a deficiency balance. If your vehicle is repossessed and sold for less than the outstanding balance on the loan or the lease, you may still owe the difference to the lender or the lessor. This is called a deficiency balance.

In some cases, bankruptcy can help you avoid a deficiency balance. If you file for Chapter 7 bankruptcy and your vehicle is sold, the proceeds from the sale may be enough to pay off the outstanding balance on the loan or the lease. This means that you won’t owe the lender or the lessor any money.

Finally, bankruptcy can help you keep your vehicle. In some cases, bankruptcy may be able to help you keep your vehicle by eliminating other debts and freeing up money to make your car payments.

With Chapter 13 bankruptcy, you can create a payment plan to catch up on your car payments and keep your vehicle.

Repossession can be a stressful experience, but know that there are options available to you, including bankruptcy. Bankruptcy can temporarily stop a repossession, help you catch up on payments, avoid a deficiency balance, and even help you keep your vehicle.

If you’re facing repossession, it’s important to speak with a bankruptcy attorney in Decatur who can help you determine which type of bankruptcy is right for you and guide you through the process. Remember, there is help available, and you don’t have to face repossession alone.