Keeping Your Car in 2021 | BDR
A Philadelphia bankruptcy lawyer protects your car now and makes it easier to afford later.
How to File Bankruptcy in 2021 and Keep Your Car
Auto loans, especially subprime auto loans, already had high delinquency rates before the coronavirus pandemic hit. These nonpayment rates are even higher in 2021. At the same time, bureaucrats and judges have eliminated some key consumer protections in debt collection laws. The combination of at-risk debtors and aggressive creditors is toxic.
Only a Philadelphia bankruptcy lawyer cleans this toxic environment and creates one that’s much more favorable to debtors. Bankruptcy immediately stops the repossession process and all other adverse actions. Furthermore, a Philadelphia bankruptcy lawyer can use this federal debt relief program to make your car more affordable in coming years.
The Automatic Stay
Creditor harassment, remote shutoff, and vehicle repossession are the three major adverse car loan actions. Section 362 of the Bankruptcy Code stops all three.
These three things happen quickly. For the first ten days after a missed payment, many banks send an onslaught of delinquency notices. Normally, banks can legally send repeated notices via voice, mail, text, email, and pretty much any other form of communication.
Most vehicles have remote shutoff mechanisms which disable the ignition. Most finance agreements give the bank the absolute power to shut off vehicle ignitions after one missed payment.
Legally, banks can repossess vehicles if one payment is one day late. But most banks wait a few weeks before they repossess secured debt collateral. However, it’s usually a bad idea to rely on a bank’s generosity if the family car is at risk. So, it’s usually best to file bankruptcy sooner rather than later.
Filing bankruptcy stops adverse action. But it does not automatically undo adverse action. Once the bank shuts off your ignition or repossesses your vehicle, a Philadelphia bankruptcy lawyer generally must deal with these things in a separate proceeding.
Chapter 7 and Reaffirmation
In general, if you are less than three payments behind on your vehicle loan, Chapter 7 bankruptcy might be a good option.
The Chapter 7 process is normally rather straightforward. After the trustee (person who oversees the case for the judge) reviews some financial and identification documents, like recent pay stubs and your Social Security card, the trustee normally recommends unsecured debt discharge.
The entire procedure normally takes about six months. Therefore, if you are about $2,000 behind, it’s relatively easy to make catch-up payments while the Automatic Stay remains in force.
Normally, Chapter 7 debtors voluntarily reaffirm their vehicle loans. They keep paying, and the bank lets them retain the collateral. This reaffirmation agreement gives your Philadelphia bankruptcy lawyer a change to renegotiate payment terms, such as the interest rate. The bank knows that it must reach a favorable agreement with the owner. Otherwise, the debtor will simply walk away from the obligation. The creditor can do nothing until the judge closes the bankruptcy, because vehicles are exempt (protected) in bankruptcy.
Therefore, Chapter 7 does not just protect your car in the short term. It also makes it more affordable in the long term.
Chapter 13 and Redemption
These same protections are available in a Chapter 13 bankruptcy. This process is generally designed for people who are facing a balloon payment they cannot make and cannot refinance, or people who deferred a number of payments during the coronavirus pandemic.
In very high delinquency matters, many creditors ask the judge for permission to bypass the Automatic Stay. Judges usually deny these motions. Typically, judges only allow creditors to bypass the Stay if the debtor endangers the collateral, perhaps by threatening to drive the car off a cliff.
The trustee’s job is different in a Chapter 13. The trustee sets debtors up on a monthly repayment plan. Typically, this repayment plan lasts three or five years. Your debt consolidation payment is based on your income and the amount of allowed claims. In a Chapter 13, “allowed claims” usually mean secured debt delinquency, administrative costs, and perhaps a few other bills.
Therefore, if Sam is $3,000 or $4,000 behind, he usually pays about $300 or $400 a month to retire that delinquency. If Sam didn’t file bankruptcy, the bank would probably demand all or most of that amount in one or two payments.
Sam could also take advantage of the redemption option. If Sam owed $10,000 on a car that’s only worth $5,000, and he paid the bank the current fair market value, the bank might have to tear up the remainder of the laon.
On a related note, it’s usually possible to buy a car either while you’re in Chapter 13 or immediately after the judge closes the bankruptcy. A Philadelphia bankruptcy lawyer can help you work out the purchase and legal details.
If your vehicle loan is delinquent, bankruptcy protects it from seizure. Some little-known legal doctrines could also make the payments easier to make. For a free consultation with a bankruptcy lawyer, contact Bankruptcy Done Right. Convenient payment plans are available.