Many people in this economy are finding themselves struggling to keep up on their car payments. When you get behind on your auto payment, you run the risk of your car being repossessed or “repoed.”  A car loan gives the bank, finance company, or title loan company a lien on your vehicle:  this is called a security interest.  What does this mean?  It means that the creditor (the “secured creditor”) has the right to take back the collateral (the car) if the payments are not made for a certain length of time.  Banks or finance companies holdings such loans can use “repo men” to find and take back (“repossess”) cars that are in default on their payments.

Repo men are generally very good at what they do.  If they are tasked with finding a car, they will generally find it fairly efficiently.  Trying to hide or conceal the location of your vehicle doesn’t work for long.  And you can’t negotiate directly with them.  Their job is only to retrieve the collateral.  They are not there to work out payment arrangements with you.  Worse still, repossessions usually happen at times and in places that are very inconvenient.  You might, for example, be at the supermarket or on some errand, and come back out in the parking lot to find your car or truck is gone.   Losing a vehicle in this way can impose a real hardship on individuals and families:  it not only means the loss of the car, but it can also mean the loss of a job if this is the only means of transportation to the job.

An option available to consumers in this situation is a Chapter 13 bankruptcy.  When the Chapter 13 case is filed with the US Bankruptcy Court, auto creditors are immediately prevented from repossessing a car for missed payments.  The entire process is stopped in its tracks.  This legal protection that person gets is called the “automatic stay.”  A Chapter 13 reorganization plan is then proposed, and this allows you to get caught up on the missed car payments over time instead of trying to have to come up with all of the missed payments at once.  So a person sees immediate relief right from the beginning.

There are additional benefits gained by paying a car loan through a Chapter 13 plan. When someone is in a Chapter 13 case, the car loan is going to be paid out over time at a discount rate of interest instead of the original contract rate of interest on the loan. In other words, you pay the Trustee’s low discount rate instead of the high contract rate of the original loan.  Essentially, the bankruptcy “rewrites” the entire loan on terms that are extremely favorable to you.  This new arrangement is legally binding on the creditor.  This discount rate can vary slightly depending on various factors; at present it is around 5%.  If you are in a high interest car loan in the 8%–25% range, the ability to take advantage of this discount rate can make a huge difference in the amount you will ultimately pay for the car.  Title loans, for example, may have very high interest rates associated with them.

Additionally, if you took out the car loan more than 910 days (this is about two and a half years) before filing the bankruptcy case, you only have to pay back what the car is worth (the fair market value) rather than the amount that the loan company says you owe.  This powerful feature of Chapter 13 bankruptcies is called a “cramdown” of a loan.  Since most cars depreciate substantially in the first few years of ownership, this can also make a huge difference in what you will pay for the car in a Chapter 13 case.

But the benefits don’t just end there.  When you file a Chapter 13 case, you can also take care of all the other types of debts that you owe.  If you have medical debts, credit card debts, past due utility bills, a garnishment, a judgment entered against you by some court, student loans, income taxes, a pending lawsuit, or you are behind on your mortgage, a Chapter 13 case can also usually solve those issues.  What is critical is to talk to someone at the early stages of things.  Every case has its own particular set of circumstances, and a Chapter 13 plan can be crafted that is tailor-made to deal with your situation.

When serious things are starting to happen in your life, it’s very important to get help as soon as possible.  Taking a “wait and see” approach is not advisable when dealing with debt issues and financial problems.  Time is of the essence.  If are facing the possibility of an auto repossession, should immediately contact a law firm that handles these cases.  You can contact us at 913-385-9900 to set up a free consultation in our office to discuss your options.