Finances have a way of going awry just when they shouldn’t, resulting in bankruptcy and car repossession. Credit-yogi.com is here to offer some insight into this topic, such as:
- Secured Debt
- Personal Liability
- Automatic Stay
- Reaffirm or Redemption
Understanding Secured Debt
A secured debt is one that is guaranteed by a piece of property, whether it’s a home or a vehicle. This type of debt can be discharged by bankruptcy; car repossession can often be halted with it, also. The reason a secured debt has property attached to it is because if one fails to repay the debt, the lender can go after the possession and sell it to pay off what’s owed. It is a person’s pledge to pay back the loan to make his payments every month or forfeit the asset.
When it comes to bankruptcy and car repossession, one may be able to have his personal liability removed from his auto loan, but bankruptcy won’t eradicate the lien on the car. However, one’s lender may not necessarily be able to repossess one’s automobile; one would have to default on the loan first. If bankruptcy is declared prior to defaulting on the loan, the lender cannot take the vehicle to recuperate its money. If one files after defaulting, it’s a different story.
The Automatic Stay
Both kinds of bankruptcy, Chapter 7 & Chapter 13, have a time period called an automatic stay during which no creditor can enforce collection efforts without the express permission of the court. This means that, while one is under the automatic stay of bankruptcy, there can be no car repossession. If one had already defaulted on the auto loan prior to filing for bankruptcy, the lender will most likely receive permission to continue with the repossession process. If one was not in default before filing, he’ll be able to keep the car.
Reaffirm or Redeem the Loan
As long as one has not defaulted on his car loan, his lender will try to convince him to reaffirm it. What this means is that one re-signs the loan, accepting personal liability on it again. The last option after filing bankruptcy to avoid car repossession is to redeem the loan. This means that one pays the total amount of the auto loan in full. One can only redeem if he is not in default on the loan. Also, due to individual state auto exemption rules, even if one redeems the loan, he may still lose the vehicle if he owes more than what the exemption allows.
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