The price of used vehicles and new cars has increased significantly in recent years, making transportation a major expense. Most households that need to purchase new vehicles will turn to financing to afford this particular purchase.
Vehicle loans are some of the most common forms of credit, and they are typically easy for someone to obtain. A car loan is “secured” by the vehicle attached to the loan. Meaning, the vehicle that is being purchased serves as collateral. This arrangement helps to ensure that even those with lower incomes or mediocre credit can qualify for financing. The value of the vehicle itself is a way for the lender to protect against borrower default.
How a vehicle secures a loan
The vehicle’s use as collateral also means that it is vulnerable to repossession until the borrower pays off the loan in full. Falling behind on payments may lead to a lender repossessing a vehicle that you are currently paying off.
The company will hire a special driver to locate the vehicle, load it onto a tow truck and take it to a secure facility, possibly without obtaining the keys from the borrower or even discussing the situation with them at all. Repossession often leads to the loss of the collateral vehicle and the money invested in it. If you are at risk of repossession, know that filing for bankruptcy could help you overcome this financial hurdle until your finances are more stable.
Timely bankruptcy can stop collection activity
It would be unfair for creditors to continue to pursue those already seeking the protection of bankruptcy, so the courts grant a stay on all collection activity after someone files. The automatic stay will temporarily halt lawsuits and stop creditor phone calls.
It can also prevent a lender from repossessing a vehicle. Given that lenders do not need to provide notice about repossession the way they would about foreclosure, those who have missed payments will likely benefit from evaluating their options for protecting themselves.
Bankruptcy won’t eliminate the need to repay a car loan, but it can help someone renegotiate the terms of their loan. Even if the lender won’t work with them, the ability to stop making certain other payments, like credit card or medical debt payments, could free up money to help someone reliably make their car payment every month.
For those struggling with debt or worried about losing their property, filing for personal bankruptcy might be a viable means of protecting a financed vehicle and reworking their finances at the same time.