One of the most common reasons that people find themselves contemplating bankruptcy to begin with, is because they are in over their head in terms of their monthly payments. Are vehicles part of your concerns with your financial situation right now? A car you once loved can become a major problem based on your changing individual circumstances such as loss of a job or just due to the declining economy over all. Lenders, however, may not be as understanding or sympathetic when you try give back a vehicle because you can no longer afford it. While that property could be repossessed, this isn’t always the end of the story.
You might have to personally guarantee your car loan, for example, after repossession occurs with a vehicle you can no longer afford, an auction will be scheduled. This means that the car goes up for sale and once it is sold you would then have to owe the difference between the sales price of the vehicle and what you owed on the note. Even when your debts are forgiven by the company, there will still be tax consequence. In a Chapter 7 bankruptcy, you may be eligible to surrender collateral that serves as security for a loan, without any further obligations for the remaining debt after the auction sale concludes.
This is essentially one way of erasing a personal guarantee from the note when it happens, because you can give back the property and be done. The lender can’t take any further action after you do this. If you can no longer afford your boat or your car payment, you may be eligible to return the vehicle directly to the lender and walk away. Bankruptcy will have a negative impact on your credit score, but a repossession will as well.
A repossession scenario means that your credit is damaged and you will still be responsible for making payments on property that you will no longer own. It may be in your best interests to instead schedule a consultation with a bankruptcy lawyer to figure out how bankruptcy can assist you when you have simply gotten in over your head with vehicle payments.
The articles on this blog are for informative purposes only and are no substitute for legal advice or an attorney/client relationship. If you are seeking legal advice, please contact our law firm directly.