By John G. Merna, Esq.
Sub-prime car loan delinquencies have reached their highest level since 2007. That is according to Bankrate.com. In fact, as many consumers are behind on car loans today as when we entered the 2008–2009 Recession.
Fixed-income and lower-income families always feel the pinch first in high-inflationary times. They experience price increases before most other Americans. This demographic is also the primary market for sub-prime vehicle loans. These loans carry higher interest rates because of the borrower’s marginal credit rating.
In other words, inflation and related factors are causing enormous financial stress for sub-prime car loan holders. There is little optimism that this trend will reverse quickly. As a result, delinquency rates will likely continue to rise. Repossessions are also expected to increase in the coming months.
The Myth About Repossession
Many people believe that once a lender threatens repossession, it is too late to act. That is not true. However, waiting does make your options more limited. The key is acting before the vehicle is actually taken. Once a car is repossessed and sold, recovering it becomes far more difficult and expensive.
How Bankruptcy Stops Repossession
Filing bankruptcy triggers the automatic stay. This is a federal court order that takes effect the moment your case is filed. It immediately stops repossession — even if the tow truck is already on its way. Therefore, timing matters enormously.
Chapter 13 bankruptcy is particularly powerful for car owners. It allows you to catch up on missed payments over a three-to-five year repayment plan. In addition, it may allow you to reduce the interest rate on your car loan. In some cases, you can even reduce the loan balance to the vehicle’s current value — a process called a cramdown.
Chapter 7 and Your Car
Chapter 7 bankruptcy can also help. If you are current on your car payment, you can reaffirm the loan and keep the vehicle. Alternatively, if the car is worth less than you owe and payments are too high, bankruptcy lets you surrender it and discharge the remaining balance. Either way, you get relief.
What You Should Do Now
If you are behind on your car loan, do not ignore the problem. Contact Merna Law as soon as possible. We offer a free phone consultation and can tell you exactly what your options are. Our virtual filing service means you can get started today — without leaving home.
Call 757-490-3800 or book a free consultation online. We serve clients throughout Virginia, including Hampton Roads, Richmond, and the Eastern Shore.
