If your car was repossessed because you failed to make payments, you might be wondering if you can reclaim it if you file for bankruptcy, the answer is yes, in most cases filing bankruptcy, Chapter 13 can help you get your car back. The key is to act fast and know what is required to make this happen. Consult an experienced Monroe bankruptcy attorney to determine your next steps.
Under Chapter 13 bankruptcy, you have a high chance of keeping your car if you can show the following:
- that you need the car to fulfill your bankruptcy (for instance, you need to travel to work to be able to pay your Chapter 13 scheduled payments),
- that you will be able to repay the car loan, along with any missed payments, according to your repayment schedule.
Request a free appointment with one of our competent Chapter 13 bankruptcy lawyers right away. When you file for bankruptcy through E. Orum Young Law Offices, we ensure that creditor harassment ceases immediately. We have been serving customers in Northeast Louisiana for 35 years and are privileged to be members of the National Association of Consumer Bankruptcy Attorneys.
We have handled more of these kinds of bankruptcy cases than any other law firm in our location. Call us today for a free case review and to chart a course to a fresh start in your finances.
Has Your Car Been Sold By Your Lender To A Third Party?
If your car has been sold, there isn’t much you can do. You normally can’t get the car back if the lender has already sold it to a third party. However, if your car has not been sold, filing Chapter 13 bankruptcy may help you recover your car back.
Will Your Lender Return Your Car?
When you file for bankruptcy, your lender will be notified and will have the opportunity to assess your proposed payment plan. In many circumstances, the lender will willingly return the car to you.
If the lender does not return your car, you must file a motion (or complaint) for turnover to ask the bankruptcy court to require the lender to return your car.
Motion For Turnover
If your car is essential to your family (you need it to drive to your workplace to fulfill your Chapter 13 payments), and your Chapter 13 payment plan pays the lender both back payments and future payments, you can file a motion for turnover.
A turnover motion orders the lender to return your car. If you want the car back, you must make “sufficient protection” payments to the lender from the time you file bankruptcy until the bankruptcy court confirms your repayment plan. At this point, you will start to make your regular monthly payments to the bankruptcy trustee.
Sufficient protection payments reimburse the lender for the vehicle depreciation (so that the lender does not lose more money) between the time you file for bankruptcy and the time your bankruptcy repayment plan is confirmed and monthly payments start. Occasionally, the lender may return your vehicle without having you file a motion for turnover after receiving your bankruptcy repayment plan detailing how it will be paid.
The Repayment Plan
You will not only need to pay the monthly amount, but you will also need to stay current on the arrearages. The good thing is that you are not required to pay the overdue amount in one single payment. The overdue payments can be spread out over the course of your 3-5 years repayment plan. You should also plan for the costs related to the repossession.
Some bankruptcy courts will allow you to pay your monthly car payment outside of the payment plan, while others may force you to pay it as part of the payment plan. This difference is significant since you pay a fee to the Chapter 13 bankruptcy trustee of up to 10% of the amount paid to creditors. Paying your car payment as part of the repayment plan might be costly depending on the size of your car payment.
You will begin making payments soon after filing, even before the bankruptcy court confirms your repayment plan.
If your car’s value is smaller than what is owed on it, you may be able to reduce your car loan’s balance amount and interest rate through a Chapter 13 bankruptcy “cramdown.”
Using A Cramdown To Reduce A Car Loan
The value of your car starts to decline after you purchase it. It is not unusual to have a car loan debt that exceeds the value of your car, particularly if the loan you took out had a high-interest rate, you paid for more than the car’s value, carried over a prior loan balance into the current contract, or bought a car that depreciates fast.
In some cases, it may be beneficial to declare bankruptcy. A Chapter 13 cramdown allows you to lower your loan debt to your car’s value.
How Do Cramdowns Work?
Cramdowns are only allowed in Chapter 13 bankruptcy. You cannot cram down your car loan in a Chapter 7 bankruptcy, but you can use a process called “redemption,” which is similar.
In Chapter 13 bankruptcy, you submit a repayment plan to repay creditors over the course of 3 to 5 years. If you satisfy certain conditions, you can suggest in your payment plan that your car lender receive your car’s value rather than the total loan balance.
Assume you borrowed $30,000 in 2015 to purchase a new automobile. The value of your newly purchased car has depreciated to $10,000 in 2018, but your loan debt has only dropped to $20,000. Therefore, only $10,000 of the loan amount is “secured debt” because the lender would only earn $10,000 (the car’s replacement value) if it were repossessed and sold your car. This is when a cramdown comes in handy.
You can propose to your lender in your Chapter 13 payment plan that you pay only the car’s replacement value. In the scenario given above, you can reduce your loan balance to $10,000 (your car’s value) and inform your lender that this is what you only intend to pay.
So What Will Happen To The Remaining Balance Of Your Car Loan?
In your Chapter 13 payment plan, your loan’s unpaid amount will be treated the same as your other nonpriority unsecured debts like medical debt and credit card debt. Because most Chapter 13 payment plans pay these creditors little or close to nothing, your car lender will probably not receive anything or just pennies on the dollar from your loan’s remaining balance. When your payment plan is completed, you will own the car completely. Any remaining loan balance will be wiped out (“discharged” in legal language).
Added Benefits of a Cramdown
When you file for Chapter 13 bankruptcy and cram down your car loan, the law permits you to cut the interest rate of your loan. In most cases, the interest rate will be the prime rate plus a little more. In most circumstances, it will be less than the interest rate on your original auto loan.
Limitations on Car Loan Cramdown
An important restriction concerning car loan cramdowns keeps people from buying new cars and then cramming down their loans afterward. To qualify for a cramdown on your car loan, you must have bought the vehicle at least 910 days (roughly 2.5 years) before filing for bankruptcy.
Other Ways For Getting Your Repossessed Car Back
Make a Deal With Your Creditor
If you believe you are behind on your monthly payments or have received a repossession notice, you might still have time to negotiate with your creditor to save your car. Your creditor, for example, may consent to a modified payment schedule, but any contractual adjustments must be documented in writing. If the creditor refuses to change the payment terms,, you can choose to surrender the car voluntarily, a process known as “voluntary repossession,” to lower the amount of fines you may be charged.
Reinstatement Of Loan
If you did not get an advance notice of repossession, you might be allowed to get your car back after a set number of days of paying your past due balance and any related repossession costs. This is known as “reinstating” the loan. However, if you were given early notice, you may only be able to get your car back if the creditor agrees to the terms.
Redeem Your Car
After repossession, the creditor may keep or sell the car. The creditor is required to notify you of its intentions, like the date of the sale or the location and time of a public auction, providing you a chance to buy back your car. In any case, you may be able to “redeem” your repossessed car by paying the full amount owed for the vehicle as well as any repossession-related fees.
Louisiana Bankruptcy Lawyers
Our bankruptcy lawyers at E Orum Young are located conveniently in Monroe, Louisiana, but we also serve clients all around Louisiana. We will help you decide on the best type of bankruptcy for you and walk you through the arduous bankruptcy filing process.
Our Monroe bankruptcy attorneys have filed the most number of bankruptcies in Northeast Louisiana. All of our attorneys are knowledgeable about the bankruptcy process and are dedicated to navigating you through the Chapter 7 or Chapter 13 bankruptcy process as smoothly as possible. If that is not enough to persuade you, our Trial Guarantee guarantees that we will take your case to trial if you are unsatisfied with the outcome of your case.
Every Monroe bankruptcy lawyer at E. Orum Young is a member of the Louisiana State Bar Association and the National Association of Consumer Bankruptcy Attorneys. So, act now and make an appointment with us. Do not go through your financial troubles alone!
Contact us immediately or fill out our online contact form to find out which bankruptcy type is best for you, how to file bankruptcy, what legal solutions you have to protect your property and assets, and how to start living a debt-free life. Your journey to financial freedom begins with a free case examination.