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Behind on Car Payments: What You Can Do About It

If you are behind on car payments, you are not alone.  America is now reaching record levels of consumers behind on car payments.   What should you do if you find yourself behind on car payments?   This article discusses why consumers are behind on car payments and what you can do about it.

Automobile Lending is Based on Profit, Not People

Automobile lenders as a whole use various forms of statistics to determine how many U.S. car loans should be generated each year.  These statistics are based upon maximum profit projections. These automobile loans do not have the consumer’s best interests at heart.   Instead, the focus is on profit.    Therefore, thousands of automobile loans are generated each year that may spell economic doom for the purchaser.   If the purchaser defaults after thousands of dollars in payments (going mostly to interest payments), it’s of no concern to the lender.  The lender will repossess the automobile, sell it, and then slap a massive deficiency judgment on the purchaser.

Therefore, whenever you seek to purchase an automobile on credit, you need to be fully aware of the dangers.  The automobile sellers and lender are seeking a profit at your expense.  You need to always start at this point of understanding: it’s all about auto-sellers profit at your expense.

Behind on Car Payments: What Are My Options?

Multiple options are available when you are behind on car payments.  First, you usually have 2-3 months before the lender repossesses the vehicle.  During this time, you can usually cure the deficiency without much trouble from the lender.   Some lenders also give “grace” periods or even a limited amount of “deferments” for a monthly payment.   Some buy-here-pay-here lenders are more strict however: they will not give any payment “graces” and sometimes repossess after 30 days of being late or less.

Secondly, you may be able to settle your obligations to your automobile lender, at least eventually.  If your automobile is behind in payments, it will eventually be repossessed and then sold a short time later.  From that point, you will be responsible legally to pay any “deficiency” after the sale. These deficiency amounts vary based on the circumstances, but can sometimes be even in excess frequently of $10,000.   The automobile lender may take much less than your “deficiency” amount in settlement just to get the loan “off their books.”

Third, you can file either Chapter 7 or Chapter 13 bankruptcy when you are behind on automobile payments.   Chapter 7 mainly only erases your debts.   In Chapter 7, generally you would be forced to make payment arrangements and keep paying on the vehicle if you desire to keep it.

Chapter 13, however, has much more powerful options in dealing with a behind-on-car-payments situation.   Chapter 13 can “reorganize your debt” and you can pay the automobile through the Chapter 13 plan at low interest.  Sometimes the automobile payments can also be much lowered in Chapter 13.   Chapter 13 also can even force your automobile lender to return a repossessed automobile if it was only recently repossessed and has not yet been sold.

The “Best” Thing You Can Do About Being Behind on Automobile Payments

By far, the best thing you can do to prevent being behind on automobile payments is simple: never buy financed cars.   Completely avoid the auto-lending market by saving to purchase paid-in-full automobiles.  Take advantage of various learning opportunities to learn how to purchase and maintain an automobile more affordably.   Buy multiple affordable vehicles: then you’ll never be forced to make a poor “quick” purchase.  If you are always “under the gun” to purchase an automobile, you will always come away with a horrible deal.   Make the wise purchasing of automobiles one of your top financial goals.

Indianapolis Bankruptcy Attorney John Bymaster explains your options if you are behind on car payments








What Happens To Your Car Payment When You File For Chapter 13?

When you file for Chapter 13, what happens to your car payment?    Usually you will be required to pay car payments through the Chapter 13 plan.  Also, the Chapter 13 case can make your car payments much lower and much easier to pay.

Who pays my car payment during the 13?

The Chapter 13 Trustee usually pays your car payments through the terms directed on your Chapter 13 plan. During the Chapter 13 case, the Trustee usually pays off your automobiles first because they are “secured” debts.   After the cars are paid, the Trustee then switches to paying your unsecured creditors.   A monthly prearranged payment is made to each automobile creditor that follows the terms of your plan.  If there are no specific terms, the Trustee just pays the maximum amount possible to the automobiles at each stage of the plan.  Essentially, the Chapter 13 Trustee ensures that your cars are paid an appropriate amount and that all terms of the plan are followed.

Can I pay my automobiles directly instead of having the Chapter 13 trustee pay them?

Generally, in the Indiana Southern District for Bankruptcy, the Chapter 13 trustee requires all short-term debts to be paid through the plan. Therefore, if you have a conventional automobile loan, the Trustee will usually request that it be paid through the Chapter 13 plan.   In some cases for appropriate reasons, the Trustee will allow direct payments to automobile creditors. Usually, the Trustee prefers that only almost-paid-off automobiles have their payments made directly to the creditor.  Remember, that the Trustee can bring an objection to your plan.  If you are not following the requirements for paying an automobile properly through Chapter 13 plan, it may slow down the confirmation of your Chapter 13 case.   Later you may be forced to amend your plan to have the TImage depicting that a vehicle can be surrendered in bankruptcyrustee pay the automobile payment.

Leases and Other Special Circumstances

Generally, all lease automobile payments are paid directly to the lease creditor. If you are leasing an automobile, you need to make those payments directly.   In other rare circumstances, it may also be appropriate to structure an automobile payment to be paid outside the plan.   Keep in mind that all Chapter 13 plans are different. Ultimately, it is your responsibility to both read and understand the terms of the plan.   The debtor signs the Chapter 13 plan, pledging that they will follow its terms and conditions.  If you have questions about your Chapter 13 plan, you need to ask your attorney immediately.

What Happens to Your Chapter 13 Case if Your Spouse Files For Divorce?

What happens to your Chapter 13 case if your spouse files for divorce?  If your spouse has filed for divorce, major changes can come quickly to your financial situation.  Your Chapter 13 case can be handled in two primary ways if a divorce situation develops.  You can either “stay the course” or consider other options.

Remaining in Chapter 13 despite the divorce: Staying the Course

Even though your spouse has filed for divorce during Chapter 13, you both may still be entitled to receive relief in Chapter 13.  If you stay the course, you will eventually receive your discharge of debts.  If you are capable of making the ongoing Chapter 13 payment yourself, then you may not need to make any changes to your case.  In other cases – although this may not be recommended – both parties in the divorce situation can agree to make a portion of the Chapter 13 payment.   If a Chapter 13 case is almost complete, continuing in the Chapter 13 could be more feasible than if the Chapter 13 case has just begun.

Considering Other Options

You may instead consider other options besides Chapter 13 if a divorce situation develops.  You may not want to be locked down in a Chapter 13 plan for several years if you are no longer on good terms with your spouse. Other possible options may include both spouses converting the case to Chapter 7.    Another option may be bifurcating the case into two separate cases in which one spouse stays in the Chapter 13 and the other spouse converts their part to Chapter 7. Because your financial situation is changing, it is very likely that additional options outside of the Chapter 13 will become available.

Remember, divorce actions can bring a conflict of interest or the lack of trustworthiness. Therefore, if an option outside of a combined Chapter 13 case is available, you may want to take advantage of that option quickly. It is not advisable to wait because in the future you may not be eligible for options present in a quickly changing financial situation.  In addition, if sufficient conflict or disharmony arises, you may even need to seek separate bankruptcy or debt relief counsel.

Options outside of bankruptcy may also become available in a divorce situation.   Depending on the amount of each party’s debts, you may be able to seek outside options.  Plans can change dramatically in a divorce situation.  When plans change, non-bankruptcy options may open up to deal with your debts.

There are many options available if divorced during a confirmed Chapter 13 bankruptcy.

Can I Surrender My Car When I File for Bankruptcy?

Can you surrender your car when you file for bankruptcy?  The answer is “Yes.”  You can surrender vehicles during bankruptcy.  Surrendering your car or truck during bankruptcy can greatly assist in your total economic recovery.   Let’s talk about how and why you would surrender your vehicle during bankruptcy.

In Chapter 7 bankruptcy, you must prepare a “Statement of Intention.”  This statement declares what you want to do with all “secured” loan items such as house and car loans.  On this statement of intention, you would need to list your intention as “Surrender.”  Then you can give back your automobile and not be required to repay the debt.

In Chapter 7, all of your debts are “discharged” which means that they are forever eliminated.  Therefore, you will never be required to repay the balance of the loan (after the automobile creditor sells the vehicle).    You will have to give the vehicle back to the lender in a timely fashion.  Even though you are protected for a time by the automatic stay in Chapter 7, you should still make arrangements during the case to give the car back to the lender.  If you do not make these arrangements, your auto creditor may forcefully repossess the car at an inconvenient time and place after the automatic stay protections stops.

In Chapter 13, you can also choose to “Surrender” your automobile through a section in your Chapter 13 plan.   Chapter 13 works very similar to Chapter 7 cases except that you may be required to pay a portion (or in rare cases the entirety) of the balance that remains after the automobile is sold by the lender.  The auto lender may amend their “secured” claim in the case to an “unsecured” claim to allow them to participate in the Chapter 13 pay-out.  In every case, surrendering an automobile in Chapter 13 requires much less (or virtually no) payback because the unsecured debt will be less than the original debt and will not require the payment of interest.

If you are stuck in bad automobile loan, surrendering the vehicle back to the lender during your bankruptcy filing can be very advantageous.   By getting out of a bad automobile situation, you will have a much better overall recovery.   Surrendering the vehicle may also give you the chance to be truly debt free: you will have a complete fresh start to build upon.

Image depicting that a vehicle can be surrendered in bankruptcy



Credit Offers After Filing for Bankruptcy?

Credit offers after filing for bankruptcy?   Yes, you will likely receive several credit offers after filing for Chapter 7 bankruptcy.  Recently, one of our clients volunteered the above photograph of how many automobile credit offers he received after filing for bankruptcy.   He quickly trashed them thereafter!  Credit offers surprisingly do come right after filing for bankruptcy.  They can be a good thing or bad thing after you file for bankruptcy.

Credit Offers after Bankruptcy: My Credit Was Not Destroyed by Bankruptcy?

Nothing proves the fact that your credit was not destroyed by bankruptcy greater than receiving innumerable credit offers after your bankruptcy filing.  Remember, bankruptcy many times can be the start to rebuilding your credit.  If you had “F” credit before you filed for bankruptcy, your credit ability will instantly increase after filing.  If you had stellar “A” credit, your credit ability will obviously decline.   I usually like to express after-bankruptcy-credit by saying that you have “C” credit.  (Note – this is all for illustration purposes only: you are not actually in A to F credit grading system).

How much can “C” credit get you?   It certainly appears to get you automobile offers and sometimes small balance credit lines.   It also many times revives the ability to enter a residential lease to rent a home or apartment.   It appears that “C” credit can get you the “essentials” on credit.   But do you want to buy the essentials on credit?   Can you afford the higher interest rates they may be offering?   Be careful jumping back into credit situations just because of piles of credit offers you may receive.

Credit Offers and Bankruptcy: Which Offers Should I Consider?

Credit offers after bankruptcy should generally be ignored.  You should pursue very few of them.   Any offer that you do pursue should be geared toward responsibly rebuilding your credit.

We have seen numerous times when a new automobile loan eventually failed when it was purchased directly after filing for Chapter 7.   In fact, purchasing automobiles (even brand new automobiles) directly after filing for Chapter 7 causes many of our client to return to our office a short time later to file a Chapter 13 case or a subsequent Chapter 7.   The best way to guarantee a return to bankruptcy court is to immediately pursue credit opportunities.   You must change your approach to incurring new debts if you want to avoid a future bankruptcy filing.

Any credit offers you consider must be capable of rebuilding your credit in a responsible and manageable manor.  If you take on too much debt, you will likely fail regardless of your motives.   We strongly recommend that you only pursue light credit responsibilities and set up automatic payments to ensure that the payments are always made on time.   Live under your means and develop a paid-in-full mentality to your finances.  Credit should only serve you, you should not serve credit!  Therefore, use only light credit only to make sure that your credit eventually fully recovers.

Image of credit offers for automobiles after filing bankruptcy