If your car has already been repossessed before filing for Chapter 7 bankruptcy, you may be able to get it back, depending on whether the lender previously auctioned it off.
3 Options for Chapter 7 Bankruptcy and repossession
There are a few different results that can occur when filing Chapter 7 after a vehicle repossession. What happens to your car depends on where you are in the repossession process and when you file for bankruptcy.
Depending on where you are in both processes, one of these three scenarios is likely:
- You still have your vehicle and an imminent repo. If you know your car is about to be picked up and you file chapter 7 bankruptcy, an automatic stay starts. An automatic suspension stops the recovery efforts. So when you file Chapter 7, the lender cannot repossess the vehicle unless you get permission from the court. However, filing for bankruptcy usually only delays a repo. If you want to keep your funded car after filing, you must make up any missed or late payments and the vehicle must be covered by an exemption in your state (exemption amounts vary by state). Your lender doesn’t have to work with you if you’re in arrears, but you may be able to negotiate with them if your car hasn’t been repossessed yet.
- Your vehicle has been repossessed, but has not been sold. If your car has already been taken over by the time you filed for bankruptcy, you may not have much time to try and get it back. Usually, lenders sell the repossessed vehicles at auction within a few weeks to pay off your loan balance. Act quickly if you want to settle something with the lender before the car sells.
- Your vehicle has been repossessed and then sold at auction. If your car has already been auctioned off, there is little or no chance of it being salvaged (probably). Filing for bankruptcy in Chapter 7 will do nothing to get the vehicle back from you if it has already been sold. However, if there is a deficit (amount of the remaining loan that you still owe after the auction), that amount could be discharged in your Chapter 7 bankruptcy.
Negotiating a repo with your lender during a Chapter 7
An automatic stay can give you the opportunity to talk to your lender about what can be done before your car is repossessed. In most cases, your car lender probably doesn’t want you to pay off the loan – it costs them time and money to repo your vehicle! If you’re already in arrears, however, your contract may already be broken and your lender may not be able to work with you.
However, if you can talk to your lender and they seem willing to negotiate, they may be able to rearrange your loan terms, such as changing the due date, lowering your interest rate, or possibly lowering your monthly payment. .
Before all of this happens, keep in mind that your lender will likely ask you to reaffirm the car loan and set off all past payments. If you can’t catch up, chances are the repo will move forward.
The consequences of Chapter 7 bankruptcy and a repo
Pensions stay on your credit reports for up to seven years. Bankruptcy can pay off debt, fail to clean up your credit reports, or guarantee that your vehicle will not be repossessed.
With regard to damage, a Chapter 7 Bankruptcy can stay on your credit reports for up to 10 years. After a repo, many traditional auto lenders don’t approve borrowers with a repo until it’s over a year old.
With each passing year, the damage from a bankruptcy or repo lessens, and there are ways to get a car loan if you really need it.
If you need another car loan after your vehicle is traded, you will likely need to find an in-house financing dealership. These dealers don’t usually ask for credit reports, so a recent repo wouldn’t be a problem if your credit isn’t taken out.
These dealerships are also referred to as Buy Here, Pay Here Used Car Lots, and they are usually a one stop shop for bad credit borrowers. The biggest downside to this type of financing is that the auto loan may not repair your credit.
Finding a car loan after bankruptcy
Time is really the only thing that can remove accurate past information from your credit reports. You can, however, work to rebuild your credit after your Chapter 7 bankruptcy is discharged.
In fact, there are auto lenders ready to finance borrowers who have recently been released from bankruptcy, called subprime lenders. They probably won’t work with you if your annuity is less than a year old, but after that, subprime lenders might be the way to improve your credit reports. These lenders report their auto loans to the credit bureaus, so you can start rebuilding your credit history with on-time vehicle payments.
Subprime lenders are registered with special finance brokers and specialize in assisting borrowers in difficult credit situations. They look at more than just your credit reports and determine your ability to take out a car loan based on the many moving parts of your financial stability. If you want to get in touch with a dealer specializing in financing, we can help.
Here has Auto Express Credit, we have cultivated a network of these special finance brokers. We have connections across the country and we match borrowers with them at no cost. Start now by completing our auto loan application form and we will look for one in your area.