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How Many Car Payments Can You Be Behind Before You Should File For Bankruptcy?

On Behalf of | Nov 1, 2021 | Bankruptcy

A vehicle is a valuable resource. People rely on their cars to get to work, take their children to school, run errands, or go on vacation. If your vehicle is repossessed, you could find yourself stranded with a significant bill to pay if you want to keep your car. One way to stop repossession is to file for bankruptcy. However, if you are behind on your car payments, you might wonder when you should file. The answer depends on numerous factors.

Filing for bankruptcy is a big decision. You should not take it lightly. If you missed one car payment and have no other debts, then filing for bankruptcy might not be the best option. However, most situations are not that cut and dry. By speaking with one of our Roseville bankruptcy lawyers, you could thoroughly review your financial situation and the possible benefits of filing for bankruptcy.

The Bankruptcy Group consists of lawyers and staff that are dedicated to helping people through their financial hardships. If you are behind on your car payment, you are likely struggling with other bills. Call our offices at 888-710-4334 to find out if filing for bankruptcy could help you find a firm financial footing once again.

Understanding Repossession in California

Most people believe that if they are late with a car payment or miss one month, their lender will not take any drastic actions. Because of the number of cars, loans, and late payments, there is some truth to this belief. However, under the law, a lender has the right to repossess your vehicle, without notice, if you are one day late on a payment.

Unlike most other creditors, if you fall behind on your car payments, your lender is not required to give you any notice that they intend to repossess the vehicle. Your car could be repossessed at any time, on any unsecured street, parking lot, or driveway. Your presence is not required. Many people go to sleep only to find that their car is gone the next morning.

Once your car is repossessed, you will be notified within 48 hours of the repossession. The notice will include your lender’s contact information and the agency that repossessed your car, along with an inventory list of personal property in the vehicle. Additionally, you will be informed of how much it will cost to regain possession of the vehicle, including storage fees and other related charges.

Filing Bankruptcy to Prevent Repossession

If you are behind on your car payments, filing for bankruptcy will prevent your lender from repossessing the vehicle. It does not matter if you are one day behind or six months. However, whether you should file and what chapter of bankruptcy depends on your circumstances. Some of the questions are California bankruptcy lawyers will ask include the following:

  • How far are you behind?
  • Do you have the money to pay it back?
  • Do you have any other outstanding bills or debts?
  • Do you want to keep the vehicle?

The answers to each of these questions will inform the advice our firm would provide. For instance, if you were only one month behind and had no other debts, the cost of filing for bankruptcy would probably be more than your car payment. However, if you are a month behind and have a significant amount of unsecured debt that you are struggling with, filing for bankruptcy might be more beneficial.

Furthermore, if you decided you did not want to keep the car because you could not afford it going forward, filing a Chapter 7 case could allow you to surrender the vehicle while discharging the remaining balance. A Chapter 7 could also protect you from repossession if you could pay the default in twenty or thirty days after filing.

Chapter 13 Bankruptcy and Car Payments

A Chapter 13 is typically filed to reorganize an individual’s debt. Most cases are filed because the debtor is behind on their mortgage or taxes and wants a manageable way to pay their creditors back. While this is also possible with a car loan, the cost of a Chapter 13 case usually outweighs the benefit of gaining five years to pay back a couple of months of missed car payments. However, there is another reason why a person might consider filing for Chapter 13.

Cars depreciate in value probably faster than any other major asset. Because of this unfortunate fact, it is not uncommon for the remaining balance on a car loan to be greater than the value of the vehicle itself. If you purchased your car 910 days before filing for bankruptcy, you might be able to lower your payment to the fair market value of the car.

To illustrate the above, imagine someone fell behind on their car loan and feared having it repossessed. The car was purchased over 910 days ago and currently has a fair market value of $6,500. The remaining loan balance is $11,000. By filing for Chapter 13, the secured balance could be crammed down to $6,500, with the remaining $4,500 being discharged as unsecured debt. Furthermore, this remaining balance would be spread over the length of the bankruptcy. This means the monthly car payment will be approximately $108. Again, this amount would not likely represent the total bankruptcy payment. Our Orange County bankruptcy lawyers will go into greater detail into how your Chapter 13 plan payment would be calculated during your initial consultation.

Call Our Experienced California Bankruptcy Lawyers if You Fall Behind on a Car Loan

Bankruptcy is not the solution to every financial problem. However, it is a beneficial option in many cases. While it might not seem to be a good idea to file for bankruptcy if you are one month behind on a car loan, there could be other reasons why you should consider filing. Additionally, there are more benefits to filing for bankruptcy than most people realize. At The Bankruptcy Group, we are dedicated to helping our clients with their financial troubles. If you are behind on your car loan or any other debt, contact our Huntington Beach bankruptcy lawyers at 888-710-4334.