Posted by on September 6, 2016 under Bankruptcy Blog | 
Vehicle Surrender or Repossession Almost Never Good
Whether or not bankruptcy can save your car or truck, surrendering it without having a well-informed plan about what you are going to do next is almost never a good idea. And putting yourself into a situation in which it gets repossessed can really hurt, both immediately and long-term.
Almost always, if you surrender your vehicle, you will owe money on the debt after your creditor sells the vehicle and credits your account the sale’s proceeds. And you will usually owe much more than you think you will.
That’s partly because the vehicle will likely be sold for less than it is worth. The creditor is not trying to be unfair about this, but it’s usually efficient for it to sell repossessed vehicles at an auto auction, where most of the purchasers tend to be used car dealers who can only pay enough for the vehicle to be able to make a profit when they re-sell it. On top of a low selling price, your creditor will tack onto your balance all of its repossession and sale costs, which can really add up. The end result is that you will likely owe a lot of money, and will likely get sued to make you pay it. Once wage and bank account garnishments start, you will probably be forced to consider bankruptcy. As you will see, it’s much better to consider it BEFORE surrendering or losing your vehicle to repossession.
How Chapter 7 Can Help
The main way Chapter 7 “straight bankruptcy” can help is by discharging (legally writing off) all or most of your other debts so that you can more easily afford your vehicle payment. If you are a month or two behind on your payments, filing the bankruptcy case would put an immediate stop to any approaching repossession. You would then have a month or two, sometimes more, to catch up. Chapter 7 allows you to focus your financial energies on your most important debts. If for you that’s your vehicle loan, and if getting rid of your debts would help enough, filing Chapter 7 BEFORE losing your vehicle could well be your best move.
How Chapter 13 Can Help
But admittedly that may not be enough help. You may be able to afford the monthly payments if you had no longer had any other debts, but have no way to make up the missed payments that quickly. Or you might have other important debts that you’re behind on, like taxes or child support, and can’t see hanging on to your vehicle in the midst of all these financial pressures. And you might not even be able to quite afford the monthly vehicle payments even with no other debt obligations.
Chapter 13 may be able to cut through ALL of these problems.
First, Chapter 13 can give up to 5 years to catch up on the back payments. Under some circumstances, you might never even need to catch up on them.
Second, Chapter 13 often allows you to pay your vehicle payment first, before other important debts like taxes and support.
And third, if your vehicle loan was entered into more than 910 days before your Chapter 13 case is filed (that’s about two and a half years), you can do a “cramdown” on the vehicle loan: lower your monthly payment, and likely pay less overall for the vehicle before owning it free and clear. How much the monthly payment can be reduced depends on a bunch of factors, but especially if your vehicle is worth significantly less than you owe on it, the payment can often be made much lower.
And if you qualify for a “cramdown” and you’re behind on your vehicle loan at the time you file your Chapter 13 case, you don’t ever have to catch up on those missed payments. They are just part of the re-written, new “crammed down” obligation.
Take Charge and Choose Your Best Option
Posted by Kevin on October 22, 0201 under Bankruptcy Blog |
Chapter 7 puts you in the driver’s seat to either keep or surrender the collateral securing your business debts.
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As you close your business, you may have different intentions about what to do with the collateral securing any of your business loans and debts.
- If the collateral consists of business assets you no longer need, your biggest concern is with avoiding or at least minimizing liability after you surrender that collateral.
- If you need that collateral for your new employment or new self-employment, you hope to figure out a way–in the midst of all your financial pressures, to be able to keep paying for it.
- If you had to sign over your personal assets as collateral for your business debts, you want to have sensible ways either to keep such collateral or surrender it, avoiding bad financial consequences either way.
A Chapter 7 bankruptcy filing will help with each of these.
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Surrendering Business Collateral
Regardless what kind of debt you may have that is secured by any business collateral, the odds are very high that if you were to surrender the collateral to the creditor you would still personally owe a large debt. Whether a simple business equipment or business vehicle purchase, the lease of a business premises secured by the business assets on site, or a business bank loan secured by virtually all assets of the business, the collateral’s value at surrender is almost never enough to pay off the entire debt. Furthermore, as you’ve likely learned, you are required to personally sign or guarantee almost all small business credit obligations; efforts to shield your personal liability behind a business or corporate name seldom work.
So it’s good to know that a Chapter 7 bankruptcy almost always (other than in situations of fraud) discharges (forever writes off) any “deficiency balance”—the amount that you would contractually owe after the surrendered collateral is sold and credited to the account.
Keeping Business Collateral
If you are personally liable on a debt with collateral you want to keep, generally the creditor will allow you to keep it as long as the account is current when your Chapter 7 bankruptcy case is filed (or else quickly brought current) and you agree to remain legally liable on the debt. You would likely have to “reaffirm” the debt—formally exclude the debt from the general discharge of your debts. Whether that is wise depends on the value of the collateral compared to the balance on the debt, the importance of the collateral to you, and your confidence in being able to pay off the debt.
A Chapter 7 bankruptcy will help you bring the account current and then to pay it off, since it discharges all or most of your other debts, enabling you to focus your financial resources on keeping the business collateral you need.
Surrendering or Keeping Personal Collateral
Earlier, when you initially entered into credit obligations on behalf of your business, the creditor may have insisted on securing the debt with your personal assets, such as your vehicle, boat, or even a second mortgage on your home. After your business fails, your practical choices on such secured debts would be not very good. If you were willing to surrender the particular collateral, you would very likely owe a deficiency balance. So, in spite of having given up the collateral, you would still have to pay a part of the debt, and often a very large part of it. If you wanted to keep the personal collateral, you would have to catch up on your payments and then make those payments on time until you paid it off. But that would be either extremely difficult or impossible while burdened with all the rest of your business and personal debts.
But a Chapter 7 bankruptcy, as stated above, would enable you to surrender whatever collateral whose debt you felt was not worth paying for, and almost certainly (again, except in circumstances of fraud) without being required to pay any deficiency balance. And on debts with collateral you want to keep, you would much more likely be able to catch up with, make consistent payments on, and eventually pay off the secured debt if you are discharging your other debts through bankruptcy.
