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Filing Chapter 13 Bankruptcy can stop repossessions. If your vehicle was repossessed but has not sold, you may be able to get it back.
When you purchase a vehicle, you will sign a retail installment sales contract stating the terms of the loan such as the purchase price, the amount financed, the interest rate and the duration of the loan. Extended warranties and GAP insurance and often added onto the loan. The lender is usually a bank, finance institution or a credit union. The contract will have language in it that allows the lender to repossess the vehicle if there is a default.
If you have a FICO / credit score below 600 you will likely have a subprime loan. This means your interest rate will be relatively high due and many other terms will not be favorable to you. The idea is that if your credit score is low, you are a high risk. So, the interest rate must be higher to match the risk of loss the lender assumes. Lower income borrowers usually receive subprime loans. These loans are expensive and difficult to stay on top of.
In a perfect world, the borrower makes the loan payments on time. At the end of the loan, the creditor releases the lien on the title and the purchaser owns the vehicle free and clear. Unfortunately, there are many things beyond our control that can affect our ability to make timely payments. Family emergencies, illnesses, work hours cut, sudden large utility bills, temporary unemployment, medical bills, garnishments, etc. can cause late payments.
The first step when someone gets behind on their payments is usually not repossession. The lender will often make phone calls and send letters and a notice of right to cure. Sometimes a lender will offer a skip a payment option, putting the missed payment to the back of the loan.
If payments are still delinquent, a lender will hire a repossession company to retrieve the vehicle. Repossessions never happen at a good time. They can occur at any time of day or night – while shopping for groceries, at work, home asleep. It is better to stop repossessions before they occur. If that is not an option for you, clean out the car as soon as possible. You may not get a chance to remove all of your personal items. Don’t expect to get anything back. Also, take photos of the interior and exterior of the car. Take a snapshot of the odometer. Vehicles often suffer dents, dings and scratches during repossession. If you get your vehicle back, you will want evidence of any damage to the vehicle.
Filing Chapter 13 Bankruptcy stops repossessions before they occur. The automatic stay is very powerful and prevents creditors from taking your property if you are late on payments. If the repossession company takes your vehicle, you should be able to get it back as long as the lender has not yet sold it at auction. So, you have to move fast. Another advantage to Chapter 13 Bankruptcy is that it can also reduce your interest rate and principal balance.
Chapter 13 Bankruptcy can stop repossessions – but did you know it can also reduce the interest rate on your loan? Many borrowers are stuck in high interest rate subprime loans or title loans. A Chapter 13 Bankruptcy allows the borrow to modify, or restructure the duration and interest rate of the loan.
The loan can be paid back between three to five years, and the interest rate can be reduced to as low as 4.75% (see TILL et ux. v. SCS CREDIT CORP).
It is possible to reduce the total balance owed to your lender if you meet certain criteria. This is extremely helpful if you are upside down – or owe more on the vehicle than it is worth. Commonly known as the 910 day rule, you must have financed your vehicle with the same lender under the same terms for 2 1/2 years or more (910 days).
EXAMPLE: Two and a half years ago you purchased a 2017 Chevy Equinox for $17,500. Your credit score is 595, so you only qualified for a subprime loan. Your interest rate is 18% and your payments are $490/month. You were recently off work due to a Covid-19 related shutdown and did not get paid. You got behind on your payments and the lender is seeking to repossess your car.
Because the way the interest is amortized, you still owe about $13,000. Chevy Equinox do not hold their value well, and the vehicle is only worth $10,500. In a Chapter 13 Bankruptcy, the pending repossession is stopped, and because you’ve owed the vehicle for 2 ½ years or more, you only have to pay back the value of the vehicle ($10,500) as opposed to what you owe ($13,000). You are able to stretch out your loan to 54 months (4 ½ years) at 4.75%. Your payments on the car are now around $240/month, saving you over $250/month.
The short answer is yes. If you got trapped in a title loan, you can pay the value of the vehicle versus what you owe. This cram down is very helpful due to the extremely high interest rates on title loans. It does not take very long for a title loan to easily double the value of a vehicle.
EXAMPLE: You own a 2005 Chevy Cobalt, valued at $1,000. You got a $1,000 title loan a few months back. The interest rate is 300%. The monthly payments are $400 and the balance keeps growing. You missed a couple payments and now owe $2,500 and are facing repossession. In a Chapter 13 Bankruptcy, the pending repossession is stopped, and you only have to pay $1,000 over 3-5 years at 4.75% interest to fully pay off the title loan off.