How Does An Indiana Bankruptcy Protect The Family Car?

Frequently, a motor vehicle is a family’s most valuable asset. In addition to its substantial financial value, it probably has a very high emotional value. Additionally, a motor vehicle is often a family’s most troublesome asset. Some lenders offered payment relief programs during coronavirus shutdowns, but some did not. As a result, many families now face substantial auto loan delinquency.

Due to some recent legal changes, the Consumer Financial Protection Bureau and other agencies no longer effectively protect vehicle owners in these cases. Fortunately, these legal changes haven’t affected bankruptcy. So, a Chicago bankruptcy lawyer has many tools to keep your car in your driveway. But, distressed debtors must act quickly. Repossessions are relatively easy to stop, but almost impossible to reverse.

Automatic Stay

Section 362 of the Bankruptcy Code stops vehicle repossession. This provision also stops wage garnishment, foreclosure, collection lawsuits, and other adverse creditor actions. Civil judges can stop these things in some cases, but only if the debtor has convincing proof of lender fraud or other misconduct.

Creditors can only get around the Automatic Stay in extreme situations. Typically, the debtor must threaten the collateral, such as a Twitter post about driving the car off a cliff. Delinquency, even if the debtor is many months behind, doesn’t count.

Technically, the Automatic Stay prohibits creditors from communicating with debtors. So, out of an abundance of caution, many creditors stop sending statements and suspend ACH payment withdrawals. If that happens, owners are still financially responsible for payments.

Property Exemption

Once people file bankruptcy, their nonexempt property belongs to the trustee (person who manages the case for the judge). The trustee can liquidate nonexempt property in order to pay the petitioner’s debts.

Most people don’t have nonexempt property. The Indiana wildcard exemption, which covers up to $10,200 in property, is usually more than large enough to protect vehicle equity. Most new car owners have almost no equity in their vehicles. Most used car owners have 100 percent equity. But a used vehicle usually has almost no financial value, especially if it needs any work or has been in a minor accident.

Other exempt assets in bankruptcy include a house, retirement account, personal property, and government benefits.

Advanced Options

The aforementioned protections come standard. Some optional protections are available as well. An attorney can unlock them.

Most motor vehicles quickly lose most of their value. This situation allows many Chapter 13 debtors to execute the redemption option.

Assume Morgan owes $10,000 on a car that’s only worth $5,000. In some cases, Morgan can pay the fair market value of the car over five years and own the vehicle outright. The bank must tear up the rest of the $10,000 loan.

Chapter 7 debtors usually have a debt renegotiation option. Bankruptcy cancels all existing debt contracts. So, the bank usually sends a reaffirmation agreement to the vehicle owner. This agreement gives an attorney a chance to renegotiate payment terms. This renegotiation could mean a lower interest rate or partial loan forgiveness.

Reach Out to Compassionate Cook County Lawyers

Bankruptcy protects your vehicle in the short term and often makes it more affordable in the long term. For a free consultation with an experienced bankruptcy attorney in Chicago, contact the Bentz Holguin Law Firm, LLC. Convenient payment plans are available.

Resource:

scientificamerican.com/article/why-americas-love-affair-cars-no-accident/