How to Keep a Vehicle Even If You’re Behind on Payments

Car DebtFalling behind on a vehicle loan is scary because of the very real threat of having your vehicle repossessed. It is all too easy for this to happen—vehicle lenders’ contracts usually legally allow them to do as soon as you are late on your payment.

Limited Help with a Chapter 7 “Straight Bankruptcy”

Once you have fallen behind on your payments Chapter 7 bankruptcy may provide some help, but it’s limited.

Filing a Chapter 7 bankruptcy case DOES at least temporarily stop the lender from repossessing your vehicle. The “automatic stay” is imposed on all your creditors, including your vehicle lender, the moment your case is filed. The “automatic stay” protects you and your assets from virtually all creditors’ actions involving their collateral, including vehicle repossession.

Then, if you want to surrender the vehicle because you can’t or don’t want to make the payments, Chapter 7 would usually give you until about a month or so after filing to keep your vehicle without making any payments. At that point, you could surrender your vehicle in a dignified way instead of by sudden repossession. Very importantly you would receive a discharge (legally write off) of the “deficiency balance,” the amount that you would usually owe to the lender after the lender sells the vehicle and credits the proceeds to your account balance.

Or if instead you wanted to keep your vehicle and were current on its debt, you could “reaffirm” the debt. This means you would exclude that debt from the discharge that you are getting on your other debts, consistently make the payments, and hopefully eventually pay it off.

However, if you want to keep the vehicle and are behind on your payments, the lender would most likely require you to catch up within a month or two after filing the Chapter 7 case. Otherwise you would not be allowed to keep the vehicle.

So if you want to keep your vehicle and you are current on your loan or can get current within about two months or so after the bankruptcy filing, Chapter 7 may be a good option.

Much More Help through Chapter 13

But if you need more time than that to catch up on your vehicle loan, then you likely need the addition power of a Chapter 13 “adjustment of debts.” In most situations it allows you much, much more time to catch up than a Chapter 7 case would. You’d likely be given a period of as much as three to five years instead of just the month or two under Chapter 7.

Under Chapter 13, you and your attorney put together a formal payment plan dealing with all of your debts, including your vehicle loan. That plan states how much you are going to pay per month on all of your debts, and which debts will receive how much and when.

If your vehicle is worth less than the debt you have against it, how your Chapter 13 plan deals with the debt turns on how long ago you entered into your vehicle loan.

If you entered into your vehicle loan relatively recently—within 910 days (about two and a half years) before filing your case—then your payment plan must earmark enough money to your lender during the life of the plan to catch up on the missed payments. With the help of your attorney you propose the payment plan showing how this is going to be done. The plan goes through a court approval process, with an opportunity for the vehicle creditor to object. If there’s an objection, the plan can usually be tweaked enough to resolve the matter. Then the plan is “confirmed” (approved) by the bankruptcy judge.

But if you entered into your vehicle loan more than 2 and a half years before filing your Chapter 13 case, you do not need to catch up on missed payments at all. In fact you can usually reduce your monthly payment, lower your interest rate, and pay less on the loan overall—often thousands of dollars less. Then at the end of the case you would own the vehicle free and clear.

So if you live in the Dallas-Fort Worth Metroplex and have fallen behind or are about to fall behind on your vehicle payments, please contact me. I’m Carrie Weir, an experienced a Texas bankruptcy lawyer. I serve the areas around Rockwall, Heath, Greenville, Lavon, Wylie, Mesquite, Royse City, Sachse, and Rowlett. Please get in touch with me for a free and confidential consultation. You can either call me at 972-772-3083 or use the contact form here.

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