Individuals choose to file for bankruptcy for several different reasons. Some people slowly make the choice to file as their financial pressure increases month by month. Other times, the choice to file for bankruptcy may occur suddenly when creditors engage in aggressive attempts to collect on a debt.
Some people file for bankruptcy after a process server provides them with lawsuit paperwork. Others take legal action when they are worried about foreclosure because they have fallen behind on a mortgage. The potential loss of a valuable asset can inspire people to pursue bankruptcy. Vehicle repossession is another common reason people decide to file for personal bankruptcy.
The loss of a vehicle can be a major setback
Most people cannot afford to purchase a vehicle outright with cash. They rely on a loan to cover the majority of the purchase price. The vehicle serves as the collateral for the loan. If they fall behind on their payments, the lender can repossess the vehicle.
Companies send out specialized tow trucks to recover vehicles when buyers fall behind on payments. Many companies now install special GPS devices so that hiding a vehicle is all but impossible after missing a payment. Some people make the mistake of assuming that they should receive notice of a potential repossession before it occurs.
Unfortunately, that is not standard. Lenders have no legal obligation to provide advance warning of a repossession. They can potentially try to reclaim a vehicle after just a single missed payment in some cases. As soon as a financed vehicle is vulnerable, those who have fallen behind on their financial obligations may need to take prompt action.
How bankruptcy helps
The most obvious way that bankruptcy helps someone facing vehicle repossession is through the automatic stay. Lenders have to halt collection activity, including attempts to repossess a finance vehicle.
The borrower may be able to renegotiate the terms of the debt as part of the bankruptcy process. They may have an easier time catching up if the lender compromises with them. They can also discharge other financial obligations that may have prevented them from making consistent payments on a vehicle loan.
Pursuing personal bankruptcy is often the best option available for those at risk of losing necessary resources, including a financed vehicle. Filers can protect their assets and begin rebuilding financially after discharging their financial obligations during bankruptcy.