It may feel like a “no-win” situation. You feel overwhelmed by your debt and are struggling to make loan payments on your vehicle. But you need your job to pay your bills and your car to commute to that job.
A common worry among individuals in financial hardship is that their vehicle may be repossessed, leaving them and their families stranded without a means of transportation.
The need for a financial re-start
Filing for bankruptcy can help provide relief from overwhelming debt. There are two common types of personal bankruptcy.
Chapter 7, also known as “liquidation bankruptcy,” involves selling non-exempt assets with the proceeds used to pay off creditors. When you file for Chapter 7 bankruptcy, an automatic stay is effective immediately. This stay will halt more collection activities, including car repossession. It will give you time to assess your financial situation and review your options. If you want to keep your vehicle, you can sign a reaffirmation agreement with your lender that allows you to keep your car by continuing to make payments under the original loan terms.
There are two drawbacks to this plan, though. Depending on the amount of your payments, you may still struggle and not get the fresh financial start you need. Also, if you fail to make payments after reaffirming the debt, the lender can repossess the car, and you will still be responsible for any deficiency balance.
Chapter 13, or “reorganization bankruptcy,” allows individuals with regular income to create a repayment plan to pay off their debts over a few years. Unlike Chapter 7, Chapter 13 does not involve liquidating assets. However, similar to Chapter 7, filing for Chapter 13 triggers an automatic stay, which stops car repossession efforts immediately. Under Chapter 13, you can keep your vehicle if you make the required payments.
Tennessee also has a “wildcard exemption” that protects up to $10,000 of non-exempt property. If your car has an “as-is” cash value of $10,000 or less, you may be able to keep it.
Bankruptcy can potentially prevent car repossession, but many factors must be considered — particularly your ability to make payments. Before deciding to file for bankruptcy, it is crucial to consult with someone who can help you understand your options and develop a strategy that aligns with your financial situation and goals.