How To Go About Stopping Repossession
Does bankruptcy stop creditors from repossessing your property? Yes, it does!
Filing for bankruptcy invokes the automatic stay — a very powerful form of statutory injunctive relief.
The instant your Chapter 7 liquidation, Chapter 11 reorganization, or Chapter 13 individual debt adjustment is filed with the U.S. Bankruptcy Court, an automatic stay stops all creditor collection actions, including repossession of personal property. Therefore, if you borrowed money to purchase a vehicle:
- The automatic stay stops the creditor from repossessing the vehicle.
- If your vehicle has already been repossessed, the creditor cannot proceed with a civil lawsuit against you for the balance owed.
- If the creditor already has a judgment against you, then it must stop wage garnishment and other collection efforts on that judgment.
Creditor Repossession Challenges
When you borrowed money to purchase a vehicle, you gave the lender a security interest in that collateral — the car, truck, motorcycle, or boat. Pew Law Center bankruptcy attorneys, are very familiar with security agreements, there is nothing unusual about this lending practice. These are common purchase money loans that make it possible for consumers to buy expensive goods without having to pay the whole amount at once. Security agreements are also commonplace for businesses that need equipment to operate. When you signed the loan agreement, you agreed that the lender, or lien holder, would be able to take the collateral back if you defaulted on your payments.
When you miss payments and default on your loan, problems generally follow. The lender will repossess the vehicle and, if you do not pay the debt to get the property back, it will be sold. The proceeds of the sale must be applied to pay down your debt. If you owe $15,000 on a Chevy truck, for example, and your lender sold it at auction for a high bid of $10,000, then you will still owe $5,000 on the original debt, plus the costs of repossession and sale. To add insult to injury, you will owe even more money on a vehicle you no longer have possession of! But as our attorneys will tell you, the collection problems don’t end there…
End Lawsuits, Judgments, Garnishment
Even though the creditor has no other collateral to repossess, it still wants the rest of the money owed under the original contract. To accomplish further collection, the creditor then files a civil lawsuit on the breached contract. Once it has a deficiency judgment, the “judgment creditor” may collect what is owed, plus attorneys fees, interest, and costs. Typically, the judgment creditor will look toward garnishing your wages until the full amount of the judgment is satisfied.
Filing for bankruptcy — and the automatic stay — protects you and your property the moment your petition is filed, putting an immediate stop to creditor repossession!
Reaffirmation Agreements for Secured Debts
Pew Law Center attorneys, will ask: Do you want to keep the vehicle — that is, the secured property — after the bankruptcy is over?
If your answer is Yes, then this can be accomplished with a reaffirmation agreement. In your bankruptcy, you may agree to pay your creditor on a debt that would otherwise be discharged in bankruptcy. That’s right! You can reaffirm an obligation that would, in the absence of this agreement, be discharged forever. Although it is a new agreement, the bankruptcy petitioner is said to “reaffirm” the earlier obligation to a particular secured creditor.
Here is an example. If you purchased your vehicle under an installment loan and you later filed for bankruptcy protection, then three things can happen with that vehicle and the associated debt:
- You are discharged from the debt and you surrender the vehicle to the creditor.
- If you are not in default on your payments, you may keep the vehicle and continue under the terms of the original installment agreement (your personal liability under the debt is discharged, however).
- You keep the vehicle and enter into a reaffirmation agreement with the creditor.
If you reaffirm a secured debt in bankruptcy — such as an automobile loan — then you would be contractually obligated to continue paying on that debt after the bankruptcy. In other words, that debt would not be discharged with the other debts. Because the obligation continues after the bankruptcy, any reaffirmation agreement must be approved by the court. Should you run into problems and be unable to make those payments in the future, you will not be able re-file for bankruptcy for some time.
Any reaffirmation agreement should be carefully reviewed by Lawrence ‘D’ Pew, an experienced bankruptcy attorney. At the Pew Law Center, our attorneys examine every option available to our clients. One such option is the reaffirmation agreement. Sometimes it is financially prudent for the debtor to keep the vehicle under revised agreement terms, but that depends upon the unique circumstances in the case.
Are you looking for a bankruptcy attorney in Phoenix? Located in Mesa, the Pew Law Center, PLLC, serves residents in the metropolitan Phoenix, Arizona, area and surrounding communities. We provide unparalleled bankruptcy representation to people who need protection from creditors and relief from debt.
Help Is Just Around the Corner
Contact our offices to learn more about how the attorneys at the Pew Law Center can help you get your financial life back on track. When you are ready to talk with us about your debt problems, we can start offering real solutions. Call us at 480-745-1770 today and schedule your FREE VIP Bankruptcy Consultation. It’s just that easy!