A vehicle loan uses the vehicle that is being purchased via installments as collateral. If the owner defaults on the loan by failing to make scheduled payments, the lender has the option of repossessing the vehicle. They can then sell it to recover the amount furnished for the purchase of the vehicle. Repossession can drag down a credit score and leave a person without the transportation they need to get to work or take care of their families.
When do people need to worry about a lender repossessing a financed vehicle?
Repossession rules depend on loan terms
Many people equate repossession with foreclosure. Both of these legal processes allow lenders to lay claim to collateral property when borrowers do not comply with loan terms. However, foreclosure, especially of a primary residence, is a process subject to many federal restrictions.
Repossession is different. There isn’t a mandatory minimum number of missed payments before repossession is possible, as is the case with foreclosure. Instead, the terms set in the initial loan paperwork determine when repossession is possible. Some lenders can initiate foreclosure proceedings after a single missed payment. Others provide borrowers with a bit more grace. Similarly, loan documents dictate when repossession becomes a risk.
Forewarning isn’t mandatory
In a foreclosure scenario, homeowners must receive written notice that conforms to strict federal standards. The same is not true in a vehicle repossession scenario. Lenders do not have to advise borrowers of imminent repossession efforts. In many cases, they may act swiftly to repossess the vehicle before the borrower even realizes the company intends to do so. Rapid repossession limits the likelihood of a person hiding a vehicle or becoming confrontational toward the professional hired to repossess the financed vehicle.
How can bankruptcy help?
A personal bankruptcy filing initiated before repossession can prevent a lender from physically taking a vehicle from the current owner. The automatic stay gives the owner an opportunity to bring their account back into good standing. In a Chapter 13 bankruptcy, it may be possible to work with the lender to modify the loan. In a Chapter 7 bankruptcy, a discharge can free up money that previously paid other debts to make paying the car loan consistently easier.
People concerned about the possibility of losing a financed vehicle may need to act quickly to protect what they have already invested in the vehicle. Discussing unmet financial obligations and collection efforts with a skilled legal team can help people avoid vehicle repossession and take greater control of their finances through a personal bankruptcy filing.
