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3 ways Chapter 13 bankruptcy helps those at risk of repossession

On Behalf of | Jan 22, 2025 | Chapter 13 Bankruptcy

Vehicle repossession can be a massive financial setback. People generally rely on their motor vehicles to get to work and meet the needs of their family members. The necessity of a vehicle is one reason why lenders are often flexible about helping people qualify for vehicle purchase financing.

Lenders also have the protection of the vehicle itself serving as the collateral property for the loan. If the borrower misses payments, the lender can repossess the vehicle. The loss of a financed vehicle can immediately worsen an individual’s financial circumstances.

Those at risk of vehicle repossession may need to consider a Chapter 13 bankruptcy as a way of preserving one of their most important assets. How can a Chapter 13 bankruptcy help a borrower who has fallen behind on vehicle payments?

1. By preventing immediate repossession

When an individual files for Chapter 13 bankruptcy, the courts provide them with an automatic stay. Until they resolve the bankruptcy case, creditors generally need to cease all collection activity.

That includes ending attempts to repossess a vehicle. Bankruptcy can allow a filer to retain a vehicle until they resolve their financial issues.

2. By renegotiating the loan

During a Chapter 13 bankruptcy, the filer must negotiate a repayment plan with their creditors. That process may also include renegotiating loan terms for secured debts.

Borrowers may be able to increase the repayment period on their vehicle loan, reduce their monthly payments and move the missed payments to the end of the repayment period. Those adjustments can help them remain in good standing with the lender after missing payments before the bankruptcy case.

3. By balancing their budget

A successful Chapter 13 bankruptcy results in a strict monthly budget where most of the filer’s disposable income goes toward payments. At the end of their repayment plan, the courts discharge their eligible debts.

Eliminating credit card balances and medical debts can free up hundreds of dollars every month. The filer may have an easier time maintaining a balanced budget and paying their obligations on time each month, including their vehicle loan.

Learning more about Chapter 13 bankruptcy and discussing current financial challenges can help people protect their most valuable assets. Borrowers at risk of losing their vehicles may need to consider bankruptcy as a means of protecting their transportation and addressing their debt.

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