My Car Payments Are Past Due

Most car lenders won’t attempt to repossess a vehicle until it has become more than 60 days past due, but it’s important to note that there is no law that states a vehicle loan must be a certain number of days late before it can be repossessed. It is completely up to the lender. If your car note is due on the 1^st and is not paid, then on the 2^nd or any time thereafter, it could be repossessed.

Filing bankruptcy opens up several options for you based on what you would like to do. If you want to save your car, bankruptcy can do that. If you want to get rid of your car and all the debt associated with it, bankruptcy can do that. If your car has already been picked up and you want to get it back, bankruptcy can do that too.

Filing a bankruptcy case immediately puts you and your property under the protection of the court. This is called the “automatic stay”. It’s a restraining order of sorts that the bankruptcy court issues that prevents creditors from repossessing your car regardless of how far behind you are or how much you owe. There are two types of bankruptcy to consider, and there are significant differences in how they approach saving your car.

By filing a Chapter 13, you can stop all collection and repossession efforts by the lender immediately. The Chapter 13 bankruptcy case puts control over your payments and loan back into your hands. The court looks at the total amount you owe, the value of your vehicle, and how long you have been paying on the note to determine the amount you will be required to pay through your Chapter 13 Plan.

Let’s use a vehicle that has a value of $10,000, a payoff of $16,000, an interest rate of 16%, and a monthly note of $500 as an example.

If the vehicle above has been paid on for more than 2.5 years, the court allows us to “cram down” the amount owed to be equal to the current value of the car ($10,000), which is less than the actual amount still owed ($16,000). This not only lowers the monthly note to $166.67 from $500.00, but also saves thousands of dollars ($6,000) otherwise owed.

If the vehicle above has not been paid on for more than 2.5 years, there is still help to be received. The court will require that the full amount owed be paid ($16,000) but by allowing it to be spread out over 60 months (5 yrs) will lower the note to $266.67 vs the current $500.00 a month rate.

Then the court does one more wonderful thing. It limits the interest rate to no more than 5%. On the example above that’s a reduction of 11% in interest alone.

You can go to www.nadaguides.com/cars to look up the value of your vehicle. Your lender would have your payoff amount and be able to tell you if you have been paying on your vehicle for more than 910 days. If yes, we can “cram down”. If no, then you would need to pay the full amount owed. Take whichever amount you would pay (value or amount owed) and divide by 60 to find out roughly what your new note would be in a Chapter 13 Plan.

By filing a Chapter 7, you also can stop all collection and repossession efforts by the lender immediately. The Chapter 7 case handles things a little differently though. Normally you would need to be current on your vehicle before filing, but there are some cases where a Chapter 7 is a better fit due to other debts and concerns that you are experiencing and the help it provides in other areas would allow you to catch up quickly on your vehicle. To save your vehicle in a Chapter 7, we would discuss either signing a Reaffirmation Agreement on the vehicle or take a look at possibly redeeming the vehicle, by paying the value to the creditor in one lump sum. Most of the time and for most people, Chapter 13 is the far better solution – but we will discuss all options so that you can decide what fits your situation the best.

Filing a Chapter 13 bankruptcy will probably be the best thing to do. The creditor will have to return the vehicle (as long as the bankruptcy is filed before the car has been auctioned off) to you and then you can change the terms of the loan through your Chapter 13 Plan as we discussed above. Even though a Chapter 7 would stop the sale of your vehicle, you would have to negotiate with the creditor on the return of the vehicle. You may have to come up with all the past due money along with other fees or be left with only the redemption option where you pay fair market value in order to “redeem” the car and get it back.

This fits a Chapter 7 bankruptcy perfectly. The Chapter 7 wipes out the debt and you return the vehicle when you’re ready during the process of your Chapter 7 case. Under normal circumstances, if you returned your car to the lender, the lender would sell it at auction and then sue you for any remaining amount still owed. But filing a Chapter 7 wipes out personal liability. The debt is completely gone.

If for other reasons a Chapter 13 bankruptcy is better for you, you can still follow the same process to return a vehicle and eliminate all debt associated with that vehicle.

You have options. These laws were created to protect you and to protect your property when things in life happen that cause financial hardship. Call me or come in to see me and let’s talk.