Repossession is a common tactic that creditors use when debtors fail to make payments on items they’ve purchased. The process is routinely used to reclaim cars and other automobiles, among other types of personal property. Although the law allows debtors to file for bankruptcy protection, there’s only a small window of time to do so. If you’re facing repossession, you need quick and experienced legal representation.
Toronjo & Prosser Law helps clients use bankruptcy to relieve the stress of debt-related legal actions such as repossession. We will review your situation and explain the best options for protecting your property and clearing the debt.
How Does Repossession Work?
When you purchase an item on credit or lease it, the contract you sign sets forth your obligations as the debtor or lessee. Your contract will usually spell out how much time you have before the account is delinquent and the creditor can take action. One such action is repossession.
Automobiles are the most common item that gets repossessed due to non-payment. But any items purchased on credit or used as collateral could be subject to a repossession action. Texas law favors creditors and the repossession process. For instance, there’s no requirement for special notice of a repossession like you might find in other states. The contract you signed may allow a grace period for missed payments, but creditors will usually take whatever actions they’re allowed to as soon as they can.
Once the property is repossessed, debtors only have 10 days to get it back, which can be difficult. Generally, the debtor must pay the full balance owed on the item, including additional fees and penalties imposed to cover the costs of repossession. If they don’t, the creditor will sell the property to cover the debtor’s outstanding debt. However, if the money recovered by the sale doesn’t cover the balance (which is common), the debtor has to pay the difference, known as a deficiency balance.
The Consequences of Repossession and How Bankruptcy May Help
The loan balance on a repossessed vehicle will likely be significant. That means the deficiency balance will be high, which may or may not include towing costs and recovery agent fees. Trying to obtain a new loan to pay for the car, either from a bank or from family or friends, is usually not an option.
Many people who are facing repossession have gotten to that point through no fault of their own. They may have lost a job, suffered a financial crisis, or experienced a medical emergency that made it impossible to keep up with their payments. Creditors typically aren’t sympathetic, and trying to call them to plead for understanding is usually a waste of time.
Having your vehicle repossessed tends to make an already difficult debt situation worse. Without a car, you can’t go to work or school. In turn, you can’t earn money or get the education you need to make more money. If you have other debt, which is likely, you’ll quickly fall behind on that as well.
Fortunately, bankruptcy provides another option for debtors who are facing repossession or have already had property repossessed, but acting quickly is critical.
Using Bankruptcy To Save Your Vehicle from Repossession
Your vehicle is probably the one piece of property you can’t afford to lose. If paying the account delinquency is not an option, then bankruptcy may be a better one.
Chapter 13 bankruptcy is one way that you may be able to get your car back and keep other property. When you file for bankruptcy, an automatic stay is put in place which stops creditors from collecting on outstanding debt. That includes repossession activity. You can also use Chapter 13 bankruptcy to change the payment terms on the property. These new terms can sometimes be more favorable and allow you more time, usually three to five years, to catch up on your delinquent account.
If the debtor can follow the repayment plan and complete the Chapter 13 bankruptcy, the creditor’s lien will be removed and the individual can keep their property. This plan has the added benefit of allowing the debtor to save more money due to more favorable repayment plans. That additional money can be used to pay down and eliminate other debt.
Another option to stop the repossession is filing Chapter 7 bankruptcy. If you want to keep your automobile, you will need to catch up on the delinquency within a much shorter period. Many people who file Chapter 7 will do so with the intent of surrendering their vehicle.
Why Would I Want To Surrender My Vehicle?
Giving up your automobile is not ideal, and for many people isn’t an option at all. However, doing so through a Chapter 7 bankruptcy may be the best choice for you. Some of the benefits include:
Clearing your debt. Your Chapter 7 bankruptcy can clear the deficiency balance you owe on the vehicle (or other property). Remember, if you surrender your vehicle outside of bankruptcy – by allowing the creditor to seize and sell it – you will owe any difference between the money brought in and your loan balance (the deficiency balance).
Not having to come up with more money. To keep your vehicle outside of bankruptcy, you’ll need to pay off the late payments, late charges, and whatever balance you owe. This is not easy, and you may have other debts you wish to pay off instead.
Canceling your insurance. Surrendering your vehicle allows you to cancel your insurance. This could save you monthly premium costs, the money for which can be redirected to other debts or expenses.
Let Us Help Decide Which Option Is Best For You
Every debt situation is different. If you’re facing collection or repossession actions concerning an automobile or other property, the best decision you can make is to not delay. Time is not on your side, but with quick action, you can either save your property or clear the debt that’s holding you back. Toronjo & Prosser Law is here to help. Call us today to get started.