If you look at your ongoing monthly expenses, you vehicle loan is probably up there as one of the big ones. Unfortunately, while your high, fixed car loan payment remains the same for the term of your loan, depreciation causes the value of the vehicle to decrease over time. After a few years, many people find themselves in a situation where they owe far more than their car is actually worth. When coupled with other financial strains, unforeseen circumstances, and debt problems, a bad car loan can be a person’s real breaking point.
Vehicle Loans are Secured in Bankruptcy
Bankruptcy under Chapter 7 and Chapter 13 allows debtors to obtain a discharge of qualifying debts. For unsecured debts, such as medical debt or credit card debt, this means that at the end of bankruptcy proceedings, a court will wipe out those debts. But unlike credit card debt and medical debt, vehicle loans are secured debt-which are loans “secured” by collateral. In essence, when you obtain a loan from a car dealership or financial institution, a lien is placed on the vehicle.
Significantly, there are limits as to the relief that bankruptcy can offer when it comes to secured debt. Unfortunately, while bankruptcy may discharge a debtor’s obligation to repay a loan, it does not strip liens or secured interests in property. In other words, bankruptcy does not offer a way for debtors to simply walk away from their vehicle loan and still keep their car. Instead, if you default on your vehicle loan, the financial institution has the legal right to seize the car to satisfy the loan.
Bankruptcy Holds Off Creditors
You need your car. It is an essential part of your life. Bankruptcy can provide you some immediate relief with an automatic stay, which stops creditor harassment and prevents any attempts to repossess your vehicle. This will give you and your attorney an opportunity to decide what to do about the vehicle and your loan. If you want to hold on to the car through bankruptcy, you will either need to:
· Continue to make car payments-but this is not an advisable option under a bad loan and defies the purpose of bankruptcy relief;
· “Reaffirm” the loan through Chapter 7 bankruptcy, in which you and the creditor renegotiate the loan so that you pay off the value of the car rather than the outstanding loan balance; or
· Restructure your vehicle loan through Chapter 13 bankruptcy in which you repay the value of your car as part of your repayment plan.
Bankruptcy Can Discharge a Vehicle Loan Deficiency
In the alternative, if you have already lost your vehicle prior to filing for bankruptcy relief, or you choose to surrender your car because it is worth less than what you owe, bankruptcy can still help provide you important relief.
The deficiency on a vehicle loan is the difference between the value of the car and the outstanding loan balance. If you car has been seized or you have decided to walk away from the vehicle, then the creditor still has a claim against you for the loan deficiency. This deficiency can be addressed through Chapter 7 bankruptcy, which will allow you to get out of the bad loan and completely wipe out the deficiency. Of if you are proceeding under Chapter 13, your deficiency can be satisfied as part of your repayment plan. Utilizing bankruptcy to discharge a vehicle loan deficiency can give you one less debt to weight you down and one less collector harassing you.
Let Us Help You Move Forward
If you find yourself with a bad vehicle loan and need debt relief, bankruptcy may be a good option for you. Contact Levitt & Slafkes, P.C. For over 30 years, our skilled attorneys have provided smart, tough legal representation to people struggling with debt. We understand the impact that debt issues can have on your life and will fight for you. Call our office today at (973) 323-2953 to schedule a consultation, or reach us online.
We are proudly designated as a debt relief agency by an Act of Congress. We have proudly assisted consumers in filing for Bankruptcy Relief for over 30 years.