It’s difficult to know if bankruptcy is the right choice for you, and repossession can make life much more difficult. In both cases you most likely don’t understand your rights. If you’re filing for Chapter 7 bankruptcy while facing repossession, or filing bankruptcy to prevent repossession, having an experienced attorney helping you through the process will ensure the best outcome in your specific circumstances.
This article provides basic information to help you understand how filing bankruptcy can delay or prevent repossession. Learn what you need to know about filing for bankruptcy in Wisconsin by scheduling a completely free consultation. Contact the Law Office of Steven R. McDonald if you’d you like a skilled Milwaukee bankruptcy attorney to review your case and answer your questions.
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Filing for Chapter 7 bankruptcy prohibits most creditors from continuing their repossession efforts. This is known as the automatic stay. Lenders can pursue special court approval to repossess your car during your bankruptcy period. The best way to avoid this special permission is to show the judge that you are making a remarkable effort to catch up on your debts and actively making payments. Luckily, it's uncommon for lenders to pursue this.
However, it's uncommon because your bankruptcy period typically only lasts a few months. Once that time runs out, there is no stay and the lender can repossess your vehicle. Most lenders prefer to wait. Therefore, Chapter 7 only provides a temporary relief from repossessive pursuit.
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It's always better to work with your lender than against them. Filing for Chapter 7 bankruptcy provides a temporary window to renegotiate your loan repayment with your lender. If you're willing and able to work with your lender, you may be able to keep your car.
It should be noted that your bankruptcy discharge wipes out your personal liability for the loan, but not your lender's bottom line. That's why repossession is usually the lender's only option after bankruptcy. Therefore your lender has an incentive to negotiate new terms--especially if your vehicle is worth less than your loan--because they want the entire balance of the loan, plus interest. Repossession is typically a loss for them too. This provides considerable potential in negotiating for a reduced balance or interest rate.
Chapter 7 bankruptcy allows you to eliminate your lender's lien by purchasing the car at its fair market value. This is called redeeming the car. If your car is worth less than your loan, you can save the difference. For example, if you owe $15,000 on your car, but the car is only worth $8,000, you can buy the car with a lump sum payment of $8,000 and save the $7,000 difference. The only issue is that you need to be able to afford to pay your lender that money, which can be difficult during bankruptcy. If you wish to redeem your car, you need to file a motion and obtain court permission.