Financing a major purchase can be a realistic solution for modern needs. Most people do not have enough capital set aside in their savings accounts to outright purchase a new vehicle if they get into a crash or their current transportation suddenly stops working.
Vehicle financing allows someone immediate access to transportation without a massive disruption to their economic circumstances. They might make payments on that purchase for multiple years. Until someone makes the final payment on a vehicle loan, the collateral property remains vulnerable.
Lenders can repossess financed vehicles as a way to recover the money spent to fund the transaction. Someone contemplating bankruptcy may worry about what could happen to the vehicle they rely on to get to work and care for their family.
If someone does not yet own their vehicle outright, what happens to it during a bankruptcy filing?
People can protect a vehicle via bankruptcy
If someone has fallen behind on vehicle loan payments, they could be at risk of repossession at any time. Depending on the terms of the loan, the lender could potentially repossess the vehicle without any advance warning. The chances of waking up to an empty driveway are much lower after someone files for bankruptcy. The automatic stay provided when someone files prevents aggressive collection activity until the end of the bankruptcy process in most cases. Someone at risk of immediate repossession can temporarily delay the loss of a vehicle by filing for bankruptcy.
Bankruptcy can help with budget issues
Falling behind on a vehicle loan is often an indicator of an unbalanced budget. People can potentially overcome that issue by discharging some of their debts. After bankruptcy, it may be easier for someone to keep up with their loan payments. They may also be able to renegotiate the terms of their loan during their bankruptcy filing. Lenders might extend the repayment period or adjust when someone must catch up on their missed payments. People can potentially lower their monthly payments and make it easier to keep the vehicle loan in good standing.
Occasionally, some of a vehicle’s equity can be vulnerable during a Chapter 7 bankruptcy. However, between exemptions and the option of a Chapter 13 filing, people can usually arrange to keep their vehicles during bankruptcy.
Understanding what happens with key assets during personal bankruptcy can help people make better decisions about when and whether to file. A timely bankruptcy can potentially be helpful for those worried about the loss of a vehicle or other high-value personal property.
