Avoid bankruptcy: Just Turn In Your Car, Right?

by Susanne Robicsek, North Carolina Bankruptcy Attorney

March 18, 2012

Bankruptcy isn’t something that you think you need to do.  After all, you don’t owe that much money, or you think you can manage your debts – except for your car.  So what to do?  You have it all figured out.

You are going to voluntarily surrender your car.

No need to file bankruptcy.

That is going to help a lot, by getting that car off your back.  Right?

Wrong!

A car lender who thinks that they aren’t going to get paid wants to get their collateral back as soon as they can, with as much ease and little effort or cost as possible.  They don’t want to pay a repo man to chase the borrower, so they often make is sound like they are cooperating you, and even helping you.

Voluntary surrender is a repossession and is a default of your credit agreement. 

Repossession is repossession, whether done in the middle of the night by a tow truck, or voluntary turnover by the borrower.  

It will not only harm your credit rating, but it will result in a repossession sale of your car no matter how the lender gets it, and usually for much less than you could have sold it for yourself  ……. and you will owe the lender the deficiency balance, which is the difference between the price it sold for and the balance on the loan.

You might be able to work something out with your lender.  The NC Attorney General gives some good tips if you are afraid your car may be repossessed, however the list misses one big suggestion.  Call a bankruptcy lawyer to see if bankruptcy can help you keep your car, or at least avoid the deficiency debt you will owe if your car isn’t sold for enough to pay the whole balance owed.

Chapter 13 might allow you a longer period of time to pay for your car, allow you to pay without having to catch up missed payments in a lump sum, lower your monthly payments on the car to make it more affordable, and/or even reduce the total amount you pay for the car if the car is worth less than you owe.

Additionally if you are behind because you were paying other debts, those debts might be able to be written off or down so that your money is going to protect the car you need, rather than pay the credit cards you can’t afford.

Chapter 7 can also help in some circumstances, either by getting rid of the other debts described above so you can afford your car, but you might have to catch up payments or reach an agreement with your car lender if you are behind, which might be done via a reaffirmation agreement.   Be aware that how courts treat car loans and reaffirmations vary from state to state, district to district, so it is good to have a bankruptcy lawyer familiar with your area to guide you.

You really want to consider this option while you still have your car – while not impossible to get it back (sometimes) after repossession, it is much easier to avoid the problem and protect the car from being picked up in the first place.

The Attorney General points out not to wait, but if you don’t seek the help of a bankruptcy lawyer soon enough, you might miss your opportunity there too.  I see a lot of people who tried to avoid filing bankruptcy or didn’t know that they could file and save their car.

Instead, they ended up filing for bankruptcy because they couldn’t pay for their car, and they lost their car to boot.

 

 

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Concentrating in Consumer Bankruptcy Law since 1988; Wake Forest Law School JD 1987 Law Office of Susanne M. Robicsek since 1993, Law Clerk to Judge Rufus Reynolds, US Bankruptcy Judge for Middle District of NC; Burns Price & Arneke, PA, David Badger and Associates, PA.

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Last modified: October 22, 2012