A debtor files for bankruptcy. Their debts are discharged; meaning their obligation to pay them is relieved. But what happens to the lien on their car? The lien on the car remains even if debts are detached. What determines if it is repossessed or not? Credit-Yogi would like to provide some counsel to those concerned about car repossession after bankruptcy:
· Lien on the Car
· State of Debt
· Automatic Stay and Motion for Relief
· Options and Items for Dispute
Lien on the Car
Loans are supported by a “secured debt”, which includes a responsibility of the car user to the lender, and the lender’s claim on the vehicle. This agreement stays valid even after the debt for the loan and the lending relationship is dissolved with the discharge.
State of Debt
The state of the loan determines whether the car is repossessed or not. If the loan is in default, the lender can motion to take action on the lien, showing that their interests are not protected in the bankruptcy.
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Automatic Stay and Motion to Repossession
When all debts are discharged, the bankruptcy court will discontinue debt collection with a motion called an automatic stay. The lender has to issue a motion for relief of the automatic stay if they wish to repossess the car. They will have to prove their entitlement and risk under the use arrangement. If the debtor is in default, the motion for relief will go through. The court will otherwise maintain the automatic stay.
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Options and Items for Dispute
After bankruptcy, the lender will want to address the unresolved debt. If the court grants their motion for relief, the debtor can challenge and take the motion to a hearing. If not, lenders will definitely look to reclaim or reaffirm the loan.
Lenders benefit more from maintaining the relationship than repossession. With repossession, legal fees, and auctioning, the lender won’t make back the full amount promised by the loan. They may also be willing to negotiate new terms if they stand to lose.
If the debtor is not in default, they also have the option for redeeming the car for its current value. This is a win if they owe more than the car is worth.
If a car is repossessed after bankruptcy, some experts warn that lenders will try to scam naïve debtors by issuing wrongful charges for repossession, or intimidate with warnings about negative charges on their credit report, which should not show if it the loan isn’t reaffirmed.
Credit-Yogi will work to protect debtors who face repossession or unfair pressure from lenders. They are a well-staffed, well connected consumer service that deals with common legal and finance issues like bankruptcy. Call 866-964-9644 for a free consultation.
