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Bankruptcy Solutions for Getting Back Your Repossessed Vehicle

Getting Back Repossessed Vehicle My last blog post detailed two ways under California law that you can get your vehicle back AFTER it's been repossessed. One involves "reinstatement" of the loan—catching up on the missed payments. This option is usually but not always available. The other is always available, "redemption"—paying off the loan in full. (See Calif. Civil Code 2983.3(b) and2983.2(a)(1).)

WHAT'S THE MAIN PROBLEM WITH BOTH OF THESE WAYS OF GETTING BACK YOUR REPOSSESSED VEHICLE?

Two problems: time and money.

California law gives you a very limited amount of time to gather the money needed to either reinstate or redeem.

Once your vehicle has been repossessed, your lender only needs to give you a 15-day notice of its intended sale of the vehicle. That notice can come right after the repossession, although the lender has 60 days to send it out. Within that 15-day period you have to decide what to do, get the required money together, and pay it to the lender. You have a right to ask for and get an additional 10 days to do this.

Depending on how quickly the lender gets you the notice, you could have less than a month after repossession either to reinstate by paying the account current (assuming that option is available) or to redeem by paying off the entire debt.

Keep in mind that with either reinstatement or redemption the amount you have to cure defaults other than the vehicle loan payments or balance, such as paying the lender's force-placed insurance premiums. You will no doubt have to pay late fees, the lender's repossession costs, possibly the lender's attorney fees and other collection fees.

In addition to what you have to pay directly to your lender, you don't get back your vehicle without first paying your local police or sheriff $15 to take your vehicle off the official repo list. (See Calif. Government Codes 26751 and 41612.) Then the repossession agent (who actually repo'd and has your vehicle) will make you pay a redemption or administrative charge, daily vehicle and personal property storage fees, and possibly other charges. (For more details see my last blog post.)

CONSIDERING ALL THESE EXTRA COSTS AND FEES, IS IT WORTH GETTING MY VEHICLE BACK?

Good question. Practically speaking there are two questions here.

First, is it worth turning your world upside down to try to gather the money needed to reinstate or redeem within the very limited time that you have?

Second, if you simply have no way to get the required money together within that time, is it worth filing a bankruptcy case to buy more time to do so?

For the rest of this blog post let's assume that you can't pay what you need to pay within the short time that California law give so. So you need the extra time that bankruptcy can give you. Let's see how bankruptcy helps not only in buying more time but in other ways related to your vehicle loan. Then we can better decide whether it's worth getting your vehicle back.

BEFORE GETTING TO THAT, COULD I JUST SOLVE MY PROBLEMS BY JUST LETTING THEM KEEP THE VEHICLE?

That's extremely unlikely. At least it is without filing bankruptcy.

If you let the lender keep your vehicle almost for sure you will still owe them on the account, and you will likely owe much, much more than you expect.

That's for two main reasons.

First, your lender would very likely sell your vehicle at an auto auction for well below retail value. That's because the buyers at these auctions are mostly used car dealers who need to make a profit once they turn around and sell your vehicle at their car lots. So the cash proceeds from your lender's sale of your vehicle credited to your account would likely be smaller than you'd think.

Second, all of the costs and fees listed above would get debited to your account, and they can really add up.

The result would be that almost always you are stuck with a balance to pay (the "deficiency balance"), often amounting to thousands of dollars.

Then the lender usually doesn't waste much time to sue you for payment of that balance. You would likely not have a defense to such a lawsuit, and within a few weeks you'd be faced with garnishment of your paychecks and bank accounts, among other collection actions, to make you pay the judgment against you.

WOULD BANKRUPTCY PREVENT THAT LAWSUIT AND GARNISHMENT, AND WRITE OFF THAT DEBT, IF I DON'T GET BACK MY VEHICLE?

Almost for sure it would. Except in highly unusual situations involving intentional fraud on your part, through bankruptcy you would be able to "discharge" (legally write off) whatever remaining debt was owed on your repossessed and sold vehicle.

The sooner your bankruptcy was filed the sooner the lawsuit-judgment-garnishment process would be stopped or prevented. This can be especially important if you own a home or other real estate because a judgment would very likely turn into a lien on that real estate. Preventing that from happening can be very important.

SO IF I DO WANT TO GET MY VEHICLE BACK, HOW DOES BANKRUPTCY HELP WITH THAT?

The immediate benefit of filing bankruptcy is to buy you time. Under some circumstances it can also reduce your monthly vehicle loan payment and the total amount you pay for your vehicle. How much time it buys and whether you can reduce your payments plus the total amount to pay depends in large part on whether you file a Chapter 7 "straight bankruptcy" or a Chapter 13 "adjustment of debts" case.

HOW MUCH TIME DOES FILING A CHAPTER 7 CASE BUY ME?

The quick answer is not very much. But it's likely more than what California law provides otherwise. So depending on your circumstances that extra time may be just enough.

Recall that after repossession your lender must give you only a 15-day notice of its intended sale of your vehicle. Plus there's the 10 extra days you can get upon request. Within that time you have to come up with all the money needed to either reinstate by paying the account current (assuming that option is available) or redeem by paying off the entire debt. In either case you would also need to have the money to pay the repo agent the various fees outlined above, often totaling many hundreds of dollars.

In a Chapter 7 case you'd get more time. How much more depends on how aggressive or cooperative your lender is.

A Chapter 7 case usually lasts about 3-4 months. The automatic stay protection from your lender's sale of your vehicle lasts only as long as the case lasts. Sometimes less if your lender is not cooperative.

For you to get back and keep your vehicle your lender will almost certainly insist on you signing a "reaffirmation agreement" and getting it filed at the bankruptcy court. That document "reaffirms" your debt on the contract, excluding it from the discharge—the legal write-off—of your debts. The reaffirmation agreement needs to be negotiated, prepared, signed, and filed at court, all before the completion of the Chapter 7 case.

The lenders generally insist that you pay everything that has to be paid to get back your vehicle. Practically speaking this means that you generally have about 2 months, possibly as much as 3 months, after the filing of your case to pay whatever you must pay.

WHY DOES FILING A CHAPTER 7 CASE ENCOURAGE MY LENDER TO BE COOPERATIVE?

Creditors generally prefer to make money on their vehicle loans by allowing you to reaffirm them, so you end up paying them in full. They know that you are discharging all or most of your other debts and so likely will have an easier time making your payments going forward. Plus you can't file another bankruptcy soon, so you're likely a much better credit risk for them than you were before.

They also know that most of the time they'll lose money, and often a lot of money, if you don't get the vehicle back. They'd sell it and have no chance at getting you to pay any "deficiency balance"—the amount left owing on the contract—because you're discharging that debt through your Chapter 7 case.

WHAT IF MY LENDER IS STILL UNCOOPERATIVE?

When your lender decided to repossess your vehicle it had given up on doing business with you. Once you've filed bankruptcy, it may still think you're too much of a risk and so may try to reduce the amount of time you have to pay what you need in order to get your vehicle back.

The lender can file a "motion for relief from the automatic stay" in your bankruptcy case asking for court permission to proceed with the intended sale of your vehicle.

The lender's filing of such a motion is more likely if your vehicle insurance has lapsed and/or you have had an extra poor payment record. How the bankruptcy court would rule on the motion turns on many factors, especially whether you have any equity in the vehicle (its value vs. its debt), how quickly you are paying whatever the law requires, and the insurance status. Even if the lender would not win the motion, its filing would likely succeed in putting pressure on you to shorten the amount of time you'd have to pay what you need to get back your vehicle.

CAN I REDUCE MY VEHICLE LOAN PAYMENTS WITH A CHAPTER 7 CASE?

No. It's a take-it-or-leave-it proposition. You almost always have to accept the contract and all of its terms in order to get back the vehicle, and then abide by the contract in order to keep it until it's paid off.

Rarely, a lender will cut some slack on how fast you have to cure the back payments, and maybe even agree to put a back payment or two to the end of the contract. But virtually never will a lender reduce the monthly payment. And most creditors will not allow any flexibility.

HOW MUCH MORE TIME DOES FILING A CHAPTER 13 CASE BUY ME?

Chapter 13 can buy you much more time than Chapter 7.

A Chapter 13 case normally lasts 3 to 5 years. The automatic stay protection does not die with the case after just 3 or 4 months as in Chapter 7 but rather can last throughout the years of the case. (That does depend on your performance under the Chapter 13 plan and, again, on your lender's level of aggressiveness.)

There is much more time to catch up on the payment arrearage. You have not just a month or two as in Chapter 7 but potentially a year or even more. That way you can focus your immediate cash flow on paying the repo agent's fees to get back possession of the vehicle, and then paying whatever has to be paid to the lender itself over time through the Chapter 13 court-approved payment plan.

In fact, if the contract is more than 2 and half years old, and you owe more on the vehicle than it is worth, you likely wouldn't EVER have to catch up on any late payments.

WHAT DETERMINES WHETHER I CAN REDUCE MY VEHICLE LOAN PAYMENTS THROUGH A CHAPTER 13 CASE?

Under the circumstances just mentioned—a contract more than 2 and a half years, the vehicle worth less than the debt—you can do a "cramdown" on the contract.

Essentially you can re-write the contract based on the fair market value of the vehicle. You pay that secured portion of contract, often with a reduced interest rate, often stretching the payments over a longer term. The effect is usually a significantly reduced monthly payment.

Under "cramdown" the lender does not have much room to object, beyond quibbling about the accurate fair market value and verifying that the payments are enough to cover depreciation.

Vehicle loan "cramdown" is available only under Chapter 13, not Chapter 7.

SO, IN THE END DOES BANKRUPTCY BUY ME ENOUGH TIME AND OTHER BENEFITS TO MAKE GETTING MY VEHICLE BACK WORTHWHILE?

Now that you have a much better idea how much Chapter 7 and Chapter 13 can each help with your vehicle loan, you're in a better position to decide whether it's worth getting back the vehicle.

For example, if your vehicle is worth more than you owe on it, and the regular monthly payments would be manageable if you discharged all or most of your other debts, Chapter 7 may make a lot of sense.

In another example, if your vehicle is worth less than you owe on it, with a contract more than 2 and a half years old, using a Chapter 13 "cramdown" may save you thousands of dollars on the vehicle loan, as well as on all your other debts.

If you haven't already done so, find out how much you will have to pay to get back your vehicle. Then talk to an experienced bankruptcy attorney to see how Chapter 7 and Chapter 13 would help in your unique circumstances.

EVEN IF IT'S NOT WORTH GETTING MY VEHICLE BACK, DO I STILL NEED BANKRUPTCY?

When you meet with your attorney you may find out that Chapter 7 would not buy you enough time on your vehicle loan. You may find out that you don't qualify for Chapter 13 "cramdown." Or there may be other reasons that getting back your vehicle would just not be worthwhile.

But there is a good chance that you still need bankruptcy help if you're in such financial distress that you got your vehicle repossessed. As discussed above, if you don't get back your vehicle you will likely owe a substantial "deficiency balance." Presumably you have other debts. You may really need to discharge all these debts so that you will never have to pay them. Your attorney will give you the advantages and disadvantages of filing and not filing either a Chapter 7 or Chapter 13 case. From that you'll be able to make an informed decision.

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