How Can an Illinois Bankruptcy Protect My Car?

Legally, bankers can repossess automobiles after just one missed payment. Other lenders can remotely disable vehicles after one missed payment. As outlined below, bankruptcy stops both kinds of adverse action.

Additionally, many buyers give in to high-pressure sales pitches. As a result, they pay more for a new or used vehicle than they can comfortably afford. Frequently, bankruptcy makes these vehicles more affordable. More on this below as well.

An effective bankruptcy lawyer unlocks these bankruptcy benefits, and other ones as well. Bankruptcy petition preparers may not know all the ins and outs of bankruptcy. And, at any rate, it is against the law for them to give advice. DIY filers are completely on their own. Bankruptcy courts do not provide assistance or even written instructions.

Short Term Protection

The Automatic Stay prohibits remote disabling, vehicle repossession, and all other forms of creditor adverse actions. In most cases, Section 362 of the Bankruptcy Code takes effect when people file their voluntary petitions, and it remains in effect until the judge closes the case.

Proper notice is usually key. Frequently, automotive lenders bundle and sell notes to other banks. So, there is a good chance that the original lender no longer holds the note. Additionally, many lenders contract repossession matters to third-party towing companies. Lenders seldom communicate with these entities. So, a tow company might be completely unaware of a bankruptcy filing.

Generally, it is rather easy to prevent adverse action before it happens. However, it is quite difficult to reverse such actions once they happen. Experienced attorneys know how the system works, so they know how to prevent adverse actions from blindsiding debtors.

Long Term Protection

Chapter 7 bankruptcy is good for people who only need short term protection, perhaps because they forgot to make a payment. Chapter 13 offers many more long term protection options that make vehicles easier to afford.

As mentioned, the Automatic Stay remains in effect until the bankruptcy closes. That could be up to five years. During this time, debtors make catch-up payments based on their incomes. As long as the debtor timely makes monthly payments and does not threaten the collateral (e.g. “I’m going to drive the car off a cliff”), the bank must wait in line for its money.

Typically, debtors voluntarily reaffirm car loan payments. Reaffirmation agreements give debtors a chance to renegotiate interest rates and other terms. Debtors have the upper hand in these discussions. Lenders know if they do not make a favorable deal, the debtor walks away from the obligation. That action leaves the bank with nothing.

Redemption might be an option as well. Most new cars very quickly lose most of their Blue Book value. But the loan amount and terms remain unchanged. As a result, the debtor is underwater (owes more than the car is worth). Redemption allows debtors to reverse this status.

Assume Butch pays $20,000 for a new car. After two years, he still owes $18,000, but the car’s Blue Book value has plummeted to $10,000. Normally, Butch is stuck with the car. Since he is underwater, refinancing is usually not an option. And, if he sold it, the sales price would not retire the loan balance.

However, if Butch files bankruptcy, the redemption option is available. If he pays the lender $10,000, the car’s current fair market value, he owns the car free and clear. He saves a whopping $8,000.

Reach Out to Experienced Lawyers

Bankruptcy might be the best way, or the only way, to keep the family car in the garage. The rest is up to you. For a free consultation with an experienced Chicago bankruptcy attorney, contact the Bentz Holguin Law Firm, LLC. We routinely handle matters in Illinois and Indiana.

Resource:

nerdwallet.com/blog/finance/late-car-payment-avoid-repossession/

/special-issues-in-an-illinois-grey-bankruptcy/