Question:
Dear Steve,
Early June 2021, my car was repossessed due to my inability to make my car payments for many months.
I contacted a local attorney, and he helped me get my car returned to me by initiating a Chapter 13 bankruptcy.
He did tell me that if the car hadn’t been repossessed, a Chapter 7 bankruptcy would be what he would have recommended for my situation, but I needed my car, and we went forward with Chapter 13.
Unfortunately, the plan was not confirmed as I had recently lost my job and could not provide how to make the bankruptcy payments to the Trustee.
Secured/Vehicle debt: $9,153
Unsecured debt: $12,546
Student loans: $72,639
So, in mid-September, that case was dismissed after pending for five months.
Now, of course, my vehicle is up for repossession again (they have not taken it yet, but that is Toyota Financial Services plan).
So my question is, am I able to file a Chapter 7 bankruptcy?
Or, since I wasn’t able to complete my Chapter 13 bankruptcy, is that no longer an option for me?
Thank you for addressing my question. I admire the way you answer other people’s questions without judgment.
Grace
Answer:
Dear Grace,
Thank you for the compliment. I appreciate it.
From my point of view, I understand using Chapter 13 bankruptcy to postpone the repossession. Therefore, it is a helpful tool to use.
You have a valid reason to file another Chapter 13 bankruptcy, but you may have to ask your attorney to file a motion for an extension of the automatic stay.
But these are issues your bankruptcy attorney can think about and discuss with you.
A Chapter 7 would give you a completely fresh start, but you’d have to hand the car back and then discharge the vehicle loan in your Chapter 7.
Many of us that filed bankruptcy had to to the beater car solution. By the way, after my bankruptcy, I drove a $500 used postal jeep. The beater car solution is where you buy a cheap car for cash after your bankruptcy, and it is generally a car that has been beaten up. But after a year following your bankruptcy, you can find yourself qualifying for a new vehicle loan at reasonable rates. You can read this to discover how stupid easy it is to rebuild good credit.
A Chapter 13 bankruptcy might delay the repossession of your current vehicle, but the repayment plan might be five years, and you might still owe extra on the car afterward. A Chapter 7 bankruptcy will discharge your debt in 90 to 120 days and give you a fresh start. It is much faster, but you’d have to find a replacement car.
If you have federal student loans, you might want to consider consolidating those into an income-driven repayment program to get the lowest payment. Private loans are a different matter, but those can be settled for less than you owe.
In the past, I’ve observed many people try to hang onto their cars for emotional reasons. I understand and get it. But purely from a math point of view, the Chapter 7 bankruptcy route might be the fastest way to discharge your debt in the shortest amount of time for the least amount of money.
If you were not happy with your previous bankruptcy attorney, you can find a good local bankruptcy attorney and have a free discussion about what a new bankruptcy would mean for you.
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Grace may also be able to file Chapter 7 and use redemption to keep her car. Through redemption, she would pay Toyota the fair market value, which (leaving aside the current appreciating vehicle market due) is often far less than what is owed.
That payment has to be in a single lump sum, which obviously folks in bankruptcy usually don’t have, but in addition sometimes having help from family or other assets (using retirement funds is generally not a good idea because of the taxes and penalties), there are lender that specifically finance Ch. 7 redemptions. The interest rates on those can be high, generally 18-22% where I practice, but if the current loan is already terrible, in terms of being underwater and its own high interest rate, then this can result in real savings.
But walking away from the car is also a goo option- many of my clients are able to finance replace vehicles immediately after filing Ch. 7, with even moderately good interest rates of less than 10%.
You are spot on. I forgot about the redemption option since I just never had that many people able to do it. And your comment on financing is important. So many people assume they will never be able to get credit again for many years and that is just wrong.
Thanks for taking the time to add great info.
How can I stop my car from being repossessed?
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