Auto loan debts might become more common in New York bankruptcy, going by a report from the Federal Reserve Bank of New York. In a blog post, its researchers found that lending for cars increased steadily after the Great Recession, but since the first quarter of 2010, originations in subprime auto loan debt (FICO scores below 620) grew by 2.5 times, which is slightly greater than auto loan originations in general and any other credit class. More disturbingly, subprime auto loan delinquencies are growing as well.
Primarily, the NY Fed is concerned with auto loan originations by auto finance companies, which disproportionately lend to subprime borrowers. In fact, in the year ending in third quarter 2016, auto finance companies originated more than 70 percent of all auto loans to subprime borrowers. At the same time, the 90-day delinquency rate on these loans is rising, even though auto-loan delinquencies are flat in general. This suggests that while subprime auto loans are deteriorating, auto loans to more creditworthy borrowers are doing better than before. The NY Fed estimates that as many as six million individuals are now delinquent on their auto loans, even though their balances are smaller than average.
To put things in perspective, though, subprime auto loans are about 25 percent of all car loans ($1.1 trillion), and households owed about $12.3 trillion in total. It’s a lot of money—and many households—but it won’t cause a widespread economic disaster. These delinquencies will, however, cause problems for debtors. How can bankruptcy help?
In chapter 7, debtors who own cars have a few options, depending on how much they owe. New York offers a $4,425 automobile exemption which rises to $11,025 for vehicles equipped for disabled persons. The federal automobile exemption is $3,775. Debtors can apply wild card exemptions to their automobile equity as well. As with many assets, if a car’s fair-market value is slightly greater than the exemption amount, a trustee might not bother taking it. If so, the vehicle still secures the debt, so the debtor must continue paying it.
The two more common alternatives are redeeming the vehicle for its remaining non-exempt fair-market value, or signing a reaffirmation agreement with the lender. Often, debtors do not have the cash necessary to redeem their vehicles, but sometimes redemption loans can be worthwhile. Reaffirmation agreements permit debtors to keep their vehicles outside the bankruptcy estate so long as they continue timely payments to their lenders.
The NY Fed’s blog post is here.
If you are running into difficulties keeping up with your auto loan, then talking to an experienced New York bankruptcy lawyer can help.
For answers to more questions about cars, auto loans, bankruptcy, the automatic stay, effective strategies for dealing with foreclosure, and protecting your assets in bankruptcy please feel free to contact experienced Brooklyn bankruptcy attorney Bruce Weiner for a free initial consultation.