Can’t Afford Your Car Loan? Should You Surrender It, Wait for Repossession or Try Bankruptcy? Skip to main content

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Can’t Afford Your Car Loan? Should You Surrender It, Wait for Repossession or Try Bankruptcy?

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Repossession

Find out your options when you can't make your car payments

Image Source: Flickr User M&R Glasgow

An unexpected financial crisis can strike anyone at any time. Even if you’ve saved up an emergency fund, paid your bills diligently, and never accumulated excess debt, extreme circumstances can happen that can wipe all of that out and leave you in dire financial straits. Divorce, unemployment, accident or illness can all cause extreme financial hardship that can rapidly make your vehicle loan and other debts unaffordable. If you can no longer afford your auto loan, three options to consider are surrendering it, waiting for the lender to repossess it, or bankruptcy. Here’s a look at how these compare.

#1 Surrender the vehicle

If you can no longer afford to pay your car loan and know that circumstance won’t change, losing the vehicle may be inevitable unless you can work out something in bankruptcy (see #3 below). Surrendering the vehicle will impact your credit rating the same as a repo, but allows you to control the process proactively. If you can’t pay the loan, contact the lender and discuss with turning the car over to them. This will save the lender the time and hassle of executing a repossession and can lower the impact of additional charges that may appear on your credit report for costs of collection.

#2 Wait for repossession

If you can’t make your payments, you can always just wait out the repo man. It’s inevitable – the lender will send someone for the car eventually and will probably inundate you with phone calls and collection notices in the interim. If you decide to go this route, you are smart to clean out anything you need from the car such as personal items and be prepared to have alternate means of transportation at a moment’s notice since the car can be taken without warning anytime or anywhere. And if your lender uses a kill switch – read more from one of our recent blogs here – the car can be shut down remotely at any moment.

#3 Consider bankruptcy

Bankruptcy can help you deal with your auto loan in a couple of different ways. With a Chapter 7 bankruptcy, you may be able to get a much lower payoff on your car’s value. For instance, if your loan balance is $4k but your car is only worth $1k, you may be able to get a settlement of that amount as part of your Chapter 7 bankruptcy, but you would have to pay that fair market value in a lump sum. With a Chapter 13 bankruptcy, you may be able to get what’s known as a “cramdown.” This can lower the loan balance down to the fair market value of the vehicle and possibly lower the interest rate as well.

Find out more – call the Law Offices of John T. Orcutt

The bottom line is, you may have more choices than you know to deal with your unaffordable car loan. Don’t assume that you have to lose the car. The bottom line is that you may – it may be unavoidable. But in some circumstances, we may be able to help you work out a plan using Chapter 7 or Chapter 13 bankruptcy that can help you keep your car. We understand that you need your vehicle to get to work, to get your kids to school, and to run important errands. You may have more options than you know - call now.

For a free North Carolina bankruptcy, contact the Law Offices of John T. Orcutt. Call +1-919-646-2654 now for a free consultation at one of our locations in Raleigh, Durham, Fayetteville, Wilson, Greensboro, Garner or Wilmington.

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