Sometimes circumstances prevent you maintaining payments your vehicle purchase. You may want to keep your vehicle, but you can no longer afford the payments. We can help you to eliminate debt obligation resulting from the voluntary repossession and help you get your credit on track to purchase a more affordable vehicle in the future.
Once your vehicle is turned over to your lender, they will sell the car at auction. This typically happens within 15 – 30 days. The auction sales price added together with the lender’s costs are subtracted against the balance on your vehicle contract. You are held legally responsible for the difference in the form of a “loan deficiency.”
How Filing for Bankruptcy Can Help with Your Loan Deficiency After Repossession
Chapter 7 Debt Elimination: A Fresh Start after Car Repossession
Filing a Chapter 7 Bankruptcy will eliminate any loan deficiency resulting from car repossession as well as other unsecured debts such as:
- Credit cards
- Medical bills
- Personal loans
- Judgments and garnishments
- Past due utility bills
- Older tax debt
This process will basically wipe the slate clean with regards to your credit and allow you the opportunity to re-build your credit.
Ignoring the loan deficiency could result in a wage garnishment, where the lender could take up to 25% of your net pay until the deficiency is satisfied or even wipe out your checking or saving account. In addition, unresolved debts will continue to negatively impact your credit score by dragging down your debt-to-income ratio and showing a past due account on your report. These factors combined impact 65% of your credit score according to FICO.
If you do not qualify to eliminate the loan deficiency debt in a Chapter 7 bankruptcy, you would be able to consolidate and most likely reduce the debt through the filing of a Chapter 13 reorganization plan.
Chapter 13 Reorganization Plan: Consolidating Your Loan Deficiency
The Chapter 13 program is a court authorized debt consolidation plan. The Chapter 13 plan is customized around your specific circumstances: total income, monthly bills, outstanding debt, loan contracts such a mortgage, other vehicle, etc. The plan prioritizes your payment on these debts in the following manner:
- Secured debts: such as mortgages and vehicle payments
- Priority debts: such as student loans and tax payments
- Monthly living expenses: such as utilities, groceries, gas, etc.
- Lastly, all unsecured debts: such as loan deficiency balances, credit card bills, medical bills, personal loans, etc.
So when we develop the repayment plan, your money funnels through this priority list typically leaving limited funds for the unsecured creditors, including your previous vehicle lender.
The reorganization plan runs from 36 –60 months. You are simply required to pay your “best efforts” towards your unsecured debts during that time frame. Whatever is left unpaid is legally eliminated or discharged.
In addition, whatever monies that are paid to the pool of unsecured creditors are reduced to 0% interest. This means that you are paying back straight principal debt. Not only does this save you significant money, but it also helps improve your qualifying ratios for future credit opportunities, such as purchasing a new vehicle.
The Chapter 13 process is a comprehensive debt consolidation plan. In addition to the above mentioned benefits, the plan also provides:
- Court protection from your creditors including:
- Home foreclosure;
- Vehicle repossession;
- Creditor calls and harassment.
- Improved credit by focused efforts to:
- Reduce principal debt therefore reducing your debt-to-income ratio;
- Restore consistent and timely payments to your creditors;
- According to FICO, these two factors alone influence 65% of your credit score.
Our Michigan Bankruptcy Attorneys are Here to Help
It is difficult to deal with the implications of losing a vehicle let alone worrying about paying back on something you no longer own. Our firm specializes in debt resolution through Chapter 7 and Chapter 13 bankruptcy; in fact it is all that we do. We can advise and assist you with resolving your debts and improving your credit.
Call us today at 866-261-8282 for a free phone or in-office consultation to discuss your best resolution. One of our caring attorneys will take the time to review your options and develop a plan to put you on the road to financial recovery.
We offer free in-office or phone consultations to review your personal circumstances, analyze your situation and advise you on the best course of action. We specialize in bankruptcy law, debt resolution, foreclosure prevention and credit repair. We have offices in Detroit, Southfield, Dearborn, Flint, Ann Arbor and Warren, Michigan. Please call us toll free at 866-261-8282 or click here to schedule a consultation right now.