How Can Bankruptcy Help Me Keep My Car?

Car and BankruptcyThere are many reasons why Georgian families have turned to the bankruptcy process as a solution to their financial troubles. Some have experienced job losses, surprise bills, or other unplanned for events such as the crash of the housing market. No matter the reason, bankruptcy is often a good way to wipe your financial slate clean and move forward with a better economic outlook.

When beginning the bankruptcy process, many clients ask our office what will happen to their car if they file for bankruptcy. Since families rely on their cars as their primary mode of transportation to work and school, how a car is treated in bankruptcy is a very important issue to consider. Read on to learn more about what happens to your car during the bankruptcy process.

The Number 1 Concern: Car Repossession

If you are considering bankruptcy, you may already be a little behind on your car payments. If you are, then your car may already be at risk for repossession by the institution that handles your car loan (called the lender). The specific rules regarding car repossession vary from state to state but in general, if your lender has a security interest in your car, then the lender can repossess it. A lender takes a security interest in the car in almost all types of car financing or leasing agreements. A security interest means that you basically use the car itself as collateral for the car loan.

How Does a Lender Repossess a Car?

Most lenders contract out repossessions to a towing company or similar business. The lender provides the company with the car’s identification information and once the company finds the car, it tows the car to the lender’s predetermined location. After that, the lender can choose to sell the car at auction in order to recoup the remaining balance on the loan.

It is important to point out that the lender and the towing company cannot “breach the peace” in order to repossess the car. This means that they cannot threaten you with physical force or violence in order to repossess the car. If you believe that your lender has breached the peace, you may be able to sue the lender and receive compensation for your damages.

How Can Bankruptcy Help?

The way a car is dealt with during bankruptcy is very fact-specific and depends on what part of the bankruptcy process has already happened. For example, if a person’s car has been repossessed but the lender has not begun the auction, the person can stop the car from being sold by filing a Chapter 7 bankruptcy. Once the bankruptcy is filed, the automatic stay kicks in and immediately prohibits the car from being sold.

You also may have the option to redeem the car which means you and the lender agree to the lender selling you the car for its current market value. If you choose to redeem, you normally need to pay the lender the agreed upon sum in one lump payment.

Another option is for the person to “reaffirm” the car loan in Chapter 7. Reaffirming the debt will allow the person to keep the car, but choosing this option also requires that the person sign a contract with the loaner and agree to continue making the car loan payments notwithstanding the bankruptcy.

Reaffirming any debt could have very serious implications and should not be agreed to unless you have spoken with an experience bankruptcy attorney about your case.

As you can see, filing for bankruptcy may help you keep your car. To determine if this course of action is best suited for your case, contact our office today to speak to an experienced bankruptcy attorney about your situation. We look forward to speaking with you!