Most of the time people want to keep their cars when they’re considering New York bankruptcy. Cars are frequently necessary for commuting, running errands, going on trips out of town, etc. However, sometimes people think that surrendering a vehicle to a lender extinguishes the debt as well. It doesn’t.
The situation is similar to that of homeowners who believe that a notice of intent to surrender a house in bankruptcy will in fact transfer the property. There, the New York homeowner is the title-holder, and if either the trustee or the creditor doesn’t want it, then the homeowner is stuck with it. The only realistic solution is to sell the home.
Surrendering an unwanted vehicle, by contrast, does transfer it to the creditor, just like a normal repossession. The crucial difference is that the creditor wants the car whereas sometimes the trustee or the lender does not want the home. The auto lender, here, gets the car, which it can sell, and then it can sue the debtor for the deficiency on the loan, leaving the debtor out of luck and car. The voluntary repossession is a default on the auto loan, which makes bankruptcy the better option to begin with. The debtor can achieve better results by surrendering the vehicle in bankruptcy.
Speaking of which, bankruptcy grants debtors a few options for keeping a vehicle.
One is redemption. The debtor pays the lender the market value of the vehicle in one lump sum payment. It might be hard to afford, but debtors can obtain redemption loans to finance the transaction. Alternatively, when the car is only worth scrap, it’ll be easy to accomplish. Debtors can also reaffirm their vehicles, but that only works if the debtor can afford the payments on the vehicle, unlike the “surrender” situation. Finally, in chapter 13, debtors who have owned their vehicles for more than 910 days can reduce the amount they owe (called a “cram-down”) to the market value of the vehicle.
These options are discussed in more detail here.
As for when the lender is actively trying to obtain the vehicle, i.e. real repossession, debtors can stall them with some tactics, notably keeping their cars locked in the garage. Repossession agents must obey the law just like any other private citizen, so they cannot trespass or destroy property. What “repo men” can and cannot do is addressed more fully here.
The lesson from cars or houses that people want to get rid of is that it usually backfires when the owners are trying to walk away from debts. Consulting with an experienced New York bankruptcy lawyer will prevent either of these or similar situations from arising.
For answers to more questions about vehicles, bankruptcy, the automatic stay, effective strategies for dealing with foreclosure, and protecting your assets in bankruptcy please feel free to contact experienced bankruptcy trustee Bruce Weiner for a free initial consultation.
