Temporary financial setbacks have a way of snowballing into something much more serious. A sudden layoff could leave a worker struggling to pay their bills. They might miss a car payment or two.
Then, they are suddenly at risk of losing their vehicle to repossession. Without a vehicle, they become dependent on public transportation and may have a harder time securing employment or caring for their family.
The terms in loan documents may allow lenders to repossess a vehicle after just one or two missed payments in some cases. A bankruptcy filing can help people facing repossession in three distinct ways.
1. Halting repossession efforts
As soon as a person files for bankruptcy, they receive an automatic stay. Creditors must temporarily stop attempting to collect on debts until the courts either discharge eligible debts or dismiss the bankruptcy case. A lender intending to repossess a vehicle typically cannot do so while the automatic stay is in effect.
2. Allowing for loan modification
Particularly in cases where people file Chapter 13 bankruptcy, their bankruptcy case can serve as leverage to modify loans they intend to retain, including car loans and mortgages. Lenders may agree to make adjustments to the loan to make it more sustainable and to help the filer bring it back into good standing, even if they cannot pay everything that is past due all at once.
3. Relieving budgetary pressure
When the courts discharge the eligible debts at the end of the bankruptcy process, filers no longer have to worry about credit card balances and other debts that could put significant pressure on their monthly budgets. Freeing up money makes it easier to pay a car loan on time every month.
Those concerned about repossession and other aggressive collection efforts may want to speak with a bankruptcy attorney about their concerns. A personal bankruptcy filing can prevent vehicle repossession in many cases.
