The main focus of a standard individual bankruptcy filing will be unsecured debts like credit card balances and medical debt. Such financial obligations are eligible for discharge at the end of a successful bankruptcy filing.
You cannot as quickly or easily address secured debts with bankruptcy, in part because you will have to address the property that serves as collateral for the loan. Mortgages are one of the most common forms of secured debt. Financing loans for the purchase of vehicles is likely the other most common form of secured debt.
When your most valuable personal property serves as collateral for a loan, the lender can repossess it if you fall behind on your obligations. Will a personal bankruptcy filing help you protect your financed vehicle from repossession by the lender?
Yes, bankruptcy could save your vehicle
So long as you act before you have already lost the vehicle, your bankruptcy filing could prevent repossession and give you an opportunity to discuss the situation with your lender. The same day that you file, the courts will issue an automatic stay.
Your creditors will not be able to pursue collection activity again until the courts resolve your bankruptcy filing. Only creditors who take the time to pursue a special claim in court can prevent the automatic stay from applying to their debt or prevents the courts from discharging a specific debt.
You may be able to reaffirm your existing vehicle loan during the bankruptcy process or negotiate different terms for the loan your lender might agree to increase how many months you make payments or to adjust other parts of the loan to allow you to catch up and bring the loan back into compliance.
You won’t receive a warning before repossession
You will likely need to act quickly once you miss a few payments on your vehicle loan. The lender does not necessarily have to inform you of their desire to repossess the vehicle the way that they would have to warn you of a foreclosure attempt related to your primary residence.
Although you may depend on your vehicle to get to work or to meet the basic needs of your children, the company can repossess it and leave you without any transportation if you wait too long to file for bankruptcy. A prompt filing will give you the automatic stay that will temporarily halt collection activity and give you more leverage when negotiating your financial obligations with your creditors.
Understanding the rules that apply to secured debts and financed vehicles in personal bankruptcy proceedings will help you protect your most valuable property.