Filing Bankruptcy May Help You Keep Your Car
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Repossession is the process by which a bank or other lender takes back a secured item tied to a defaulted loan.
A secured debt is one that is tied to a specific item, such as a home mortgage or can loan. Unlike a credit card, an unsecured debt, secured loans are typically for a set amount, to be paid back over a specified amount of time, with an equal payment each month.
Any time you finance a purchase, there is a risk of repossession. When you sign a contract to make payments on an item, the bank or institution that finances your purchase is the owner, until you make your final payment. And if you miss a payment, even by a few days, the lender has every right to take the item back.
Although repossession is most commonly associated with automobiles, any item that is financed could be repossessed, including furniture, appliances, or tools.
Foreclosure is a form of repossession that is typically associated with home mortgages. Technically, the terms are interchangeable.
Banks and other lenders finance purchases because of the security interest involved. The security interest secures your payments to the item you are you purchasing.
The process to repossess a vehicle or other secured item is governed by different laws in each state. However, in every state, lenders have rights to regain property that is in default.
Repossession starts when a payment on a leased or financed purchase is late or missed. Many states offer a grace period for late payments, during which a debtor may make a late payment without going into default.
Once the loan enters default, the lender may begin the repossession process. Lenders may send a notice of intent to repossess, including the amount past-due and any fees, but such notice is not necessary.
Most lenders contract repossession agents to perform the task of property seizure. These agents are allowed to legally take any vehicle on behalf of the lender, so long as there is no "breach of peace"—meaning they can take a vehicle from the debtor's property, unless it is parked in a closed garage, or there are "No Trespassing" signs posted.
Once the lender has repossessed the vehicle, they will send the debtor a notice. If a warning was not sent prior to repossession, the debtor may be able to reaffirm the debt by paying the balance due and fees within 15 days. Otherwise, the debtor may be able to pay off the entirety of the debt to regain possession of the vehicle.
If no agreement to reaffirm or pay off the debt is made, the lender will typically sell the vehicle at auction to recover the full amount of the loan. At this point, the debtor may still be able to regain control of the repossessed vehicle by successfully bidding on the vehicle.
However, if the auction does not recoup the full debt, the lender may be able to sue the debtor in order to regain the full amount of the debt. If the auction brings in more than what was owed on the debt, the lender must give any excess to the debtor.
If a car loan goes into default, the debtor may be able to work with the lender to prevent repossession from taking place, from a one-time late payment to a lower monthly balance.
If the lender is unable or unwilling to negotiate, debtors may be able to file chapter 13 bankruptcy to prevent similar repossession action. Similar to home foreclosure, repossession can be stopped by the automatic stay, a court order issued once the personal bankruptcy petition is filed.
If you are facing repossession on a vehicle, you can discuss your situation and possible solutions with a local bankruptcy lawyer. Simply fill out our free case evaluation form or call 877-833-2410 to connect with a bankruptcy attorney today who can provide you with a free case evaluation.
The above summary of repossession is for informational purposes only, is not all-inclusive and is not legal advice. For more information on preventing repossession, speak with a bankruptcy attorney in your area.