Every year, tens of thousands of Californians declare bankruptcy under Chapter 7, and the vast majority of them own cars. Many of them delayed declaring bankruptcy out of concern that their vehicles would be seized and sold off to pay their creditors, but even in Chapter 7 cases, this rarely occurs. People who declare Chapter 7 bankruptcy typically either redeem their vehicles or give them back to the lenders of their auto loans.
The automatic stay
An automatic stay is imposed by the court to whom the Chapter 7 bankruptcy case is assigned when one is filed. This is a court order that forbids creditors from pursuing additional debt recovery measures for obligations covered by the bankruptcy. This means that even when auto loans are severely beyond due, filing for Chapter 7 bankruptcy temporarily halts vehicle repossessions.
Reconciliation, atonement, or return
The value of the vehicle and the cost of paying down the loan will influence what happens next. Returning vehicles to banks may be the best course of action when their value is significantly lower than the amount due. Reaffirming the loan or redeeming the car may make more sense when the numbers slant the other way.
Reaffirming the debt entails deciding not to file for bankruptcy and committing to continue making payments. Redeeming the car entails either paying off the remaining loan balance or negotiating a settlement with the bank depending on the current worth of the vehicle.
Avoid using predatory lenders
Due to predatory lenders’ knowledge that customers develop strong emotional bonds with their cars, redemption finance has become a specialized form of lending. Due to balloon payments, these are expensive loans given to desperate borrowers that frequently seem more reasonable than they actually are. Redeemable loans are one type of financing that is rarely acceptable to persons who have just filed for bankruptcy.
We are here to help you with bankruptcy questions
If you have questions about whether or not bankruptcy is right for you, or what you can expect if you file for bankruptcy, then we invite you to contact Law Offices of Terrence Fantauzzi at (909) 552-1238 to learn more today. We can begin with a consultation during which we’ll go over all your options.