Obtaining a vehicle loan is usually a straightforward process, as the vehicle serves as collateral. The lender does not have to worry about defaults because they can repossess the vehicle to recoup the money provided to purchase the vehicle.
People driving financed vehicles may worry about losing their transportation and the money they have already invested in the vehicle if they fall behind on payments. Both Chapter 13 and Chapter 7 bankruptcy can help people protect their financed vehicles from repossession.
How does bankruptcy help prevent repossession?
Vehicle repossession generally does not require advance notice from the lender. Some people could be at risk of repossession after a single missed payment. Lender policies and the terms included in loan documents dictate when repossession is possible.
People at risk of repossession can prevent the loss of their vehicle by filing for bankruptcy before repossession occurs. The automatic stay grants some respite from collection efforts until the courts resolve their bankruptcy filing.
In a Chapter 13 bankruptcy, lenders may cooperate with a loan modification that could help the filer catch up on their missed payments and keep their loan in good standing. In a Chapter 7 bankruptcy case, the elimination of other financial obligations may help the filer make their payments on time in the future.
Provided that the vehicle owner files the initial paperwork before repossession occurs, they can potentially protect their vehicle and ensure they have transportation for work and household needs. How quickly they need to act depends on how many payments they have missed and lender policies.
Filing personal bankruptcy in time can help prevent vehicle repossession and the financial setbacks the loss of a vehicle could cause. Those who have missed vehicle payments may need help assessing their options before repossession worsens their circumstances.