Something that worries many people when facing financial difficulties is vehicle repossession. After all, if a lender repossesses your vehicle, it can be more challenging to get to work to make money to pay off all your other bills. Filing for bankruptcy is one way to handle a vehicle lender’s attempts to collect payment if you’re in the hole. Whether you file for Chapter 7 or Chapter 13 bankruptcy, an automatic stay will be placed on all collection activities. You may be able to protect your car from liquidation through the Alabama wild card exemption under Chapter 7, but Chapter 13 offers a tool specifically designed to allow you to keep your car in the face of vehicle repossession by the lender. A knowledgeable Montgomery bankruptcy attorney can evaluate your situation and determine whether using the Chapter 7 wild card exemption or filing for Chapter 13 to avoid vehicle repossession makes sense for you.
Claims can be secured, unsecured priority claims, and general unsecured claims. Usually car loans are secured loans, which means that the car can be used to “secure” the loan used to buy it and it can be repossessed should you fail to make payments on it. Filing for Chapter 13 bankruptcy allows you to keep your possessions so long as you use your disposable income to repay creditors over a three-to-five-year period. However, your debt repayment plan must deal with any back payments you owe on the car in addition to staying current on payments you owe during the repayment period.
You don’t have to immediately bring the back payments current, but you will have to make adequate protection payments between the time you file for bankruptcy and the time the court approves your payment plan. Your attorney will arrange for adequate protection payments to be paid through your plan.
Cars depreciate rapidly after purchase. Sometimes your car loan is greater than the car’s value. You may be able to reduce the amount of a car loan through the Chapter 13 procedure known as the “cramdown.” To use this tool, you must have bought your car more than 910 days (two years and six months) ago and your car loan must be greater than your car’s market value. You can ask that the lender receive only the value of the car, not the entire loan balance. Like other unsecured debts, the portion that is not secured by the car’s value becomes unsecured debt, subject to discharge once you have completed your debt repayment plan.
You may be able to protect your car from being liquidated in a Chapter 7 bankruptcy using a wild card exemption, but this may not protect it if the lender decides to repossess it. All collection activities, including vehicle repossession, are stayed during Chapter 7 bankruptcy. However, a lender can ask the court to lift the stay with respect to your car. You can use negotiation or cure your default to prevent the lender from repossessing in this case. However, using a cramdown through Chapter 13 may be a better solution for you. Alabama bankruptcy lawyer Charles Grainger can evaluate which type of bankruptcy would be better to file to stop the loss of your vehicle. We serve clients in South-Central Alabama from our offices located in Montgomery, Prattville, and Troy. Call us at (334) 260-0500 or contact us online to schedule a consultation.