That moment of anxiety, when you’re not quite sure your car will still be there….
That feeling is all too common for anyone who is behind on car payments. While you sleep, is the lender repossessing? What about while you’re working?
But for most people, use of a car is an essential part of life. It’s your means to get to work. To drop the kids at school. To buy groceries. A lender repossessing would be devastating.
Stop the Lender From Repossessing – Your Options:
You can always try to work something out with your vehicle lender, but that requires the lender to cooperate. And, unfortunately, the lender may simply refuse.
Alternatively, you can try to refinance the loan with a new lender, but if your credit has already been impacted (which it likely has), then this is a dead end. In addition, if the car value is less than the loan balance (i.e. “under water”), you’ll probably have to come up with a few thousand dollars to reestablish an equity cushion. Most likely the refinancing lender is also going to nail you on the interest rate and fees.
The Bankruptcy Option:
Bankruptcy remains perhaps the most effective means to halt the threat of a vehicle repossession. In a chapter 13 bankruptcy, you can often adjust the terms of your vehicle loan. A chapter 13 plan generally lasts for between three and five years, which is the period in which you’ll have to pay off your entire vehicle loan balance. In a chapter 13, here are the key ways you can alter a vehicle loan:
- Lower your interest rate (as of the drafting of this article, a rate of approximately 5% is generally permissible);
- Extend the repayment period to the full length of your chapter 13 plan (which can be as long as 5 years). For anyone with less than five years left on their repayment, this will usually reduce the monthly payment amount;
- In certain instances, you may even be able to reduce the amount of the loan to the current fair market value of the vehicle.
So long as the vehicle owner stays current on his or her chapter 13 plan, the vehicle lender is prevented (by this thing called the “automatic stay”) from repossessing the vehicle or taking any other collection action. In total, bankruptcy provides leverage to alter the terms of a vehicle loan. And unlike negotiations outside of bankruptcy, the vehicle owner is not relying on the cooperation of the lender to adjust those terms – they can actually be imposed by law.
To see an example showing how much a vehicle owner could potentially save, by reducing the interest rate on a vehicle loan, check out this article: Stuck with a High Interest Rate Car Loan.