While owning a car can certainly be a luxury, in most cases it is a necessity. When you lease a car or borrow money to buy it, you must make monthly payments. With so many financial obligations, many people struggle to stay on top of car payments. This is especially true if you also have mortgage and student loan debt. If you do not make a loan payment on time, your loan is then considered to be delinquent.
Delinquent car loans could ruin your credit and end in car repossession. For this reason, it is important to understand how the repossession process works and what you can do about it.
What’s repossession and when it is allowed
When a borrower is behind on payments, they risk getting their car repossessed. This means that the bank or leasing company retrieves the vehicle from the borrower; once statutorily required notices have been given the vehicle will be taken without warning. Cars can be taken away on tow trucks, or lenders might send someone to collect the car.
Why does this happen? To borrow money or lease a car, borrowers need to agree on specific terms and when those terms are not met by the borrower, the vehicle may be repossessed by the lender. The lender receives a security interest in the vehicle to secure repayment of the loan. In Texas this is the reason that the lender holds onto the Title for the vehicle until the loan has been repaid. This security interest means the lender can repossess the security (in this case, the vehicle) when borrowers don’t have car insurance, or they don’t make timely loan payments.
Unfortunately, besides losing the vehicle, your credit will suffer, and you will likely owe a large deficiency balance. A deficiency balance is the difference between the amount owed on the loan when the vehicle is repossessed and what the lender receives for the vehicle at public auction. A repossession will show as such on your credit report for years after the repossession has occurred making it difficult and expensive to finance another vehicle in the future.
You have a repossessed car, now what?
Most lenders in Texas are required to sell the repossessed vehicle at public auction. You have the right to know when and where the sale will take. You may owe a large deficiency balance to the car creditor after the car is sold. The creditor can, and in a lot of a cases, will sue you to take that money owed to them from you. Luckily, you can discharge the entire amount owed to the car creditor in a Chapter 7 bankruptcy. If your car is in danger of repossession and you want to keep it, see the paragraph below.
Keep your vehicle through bankruptcy filing
If the car has not been sold yet, it is often possible to retrieve and keep the vehicle by filing bankruptcy. If your vehicle has not yet been repossessed a bankruptcy filing can prohibit the repossession and give a Debtor options for keeping the vehicle and getting payments back on track. Filing for bankruptcy triggers an automatic stay that stops collection efforts by creditors. Depending on the Bankruptcy Chapter you file, this buys time to gather the money to get the vehicle back or cure arrears through the bankruptcy.
Learn all about car repossessions and other matters related to bankruptcy by getting the expert advice of Acker Warren P.C.