What Should I Do When I Am Behind on Car Payments?

Your vehicle is your lifeline and facing life without it can be an expensive proposition. People rely on having on-demand transportation for getting to work, school, driving kids and elderly relatives, and getting on with the errands that Amazon Prime membership can’t cover. The idea of losing this convenience also comes with worries about how to get to work, maintain employment, and keep paying the bills. Falling behind on car payments happens a little at a time, but the repo men are generally not patient when you are late with your payments.  Let’s look at how this all works in Florida and how to stop a repossession when you’re behind on car payments, or even keep your car and reduce your payments by filing  bankruptcy. 

Car Repossession 101

Repossession happens quickly when you are in default, but it is not immediate. There is a process that has to be followed by Florida law before an automobile can be repossessed. The terms leading up to repossession are laid out in the contract that you signed when you purchase the car, and “licensed recovery agents” have to abide by state law when they are undertaking repossession. Furthermore, there is a statute of limitations for automobile loans of five years, after that time it becomes a time-barred debt. Let’s look closely at the process of repossession – and understand that depending on your contract just one missed payment is enough to trigger the process.

1. By law, before hiring a licensed recovery agent, the lender has to give you an opportunity to convey the automobile to them voluntarily.
2. A recovery agent can come on to private property to repossess the automobile, but cannot break through a lock security gate, or enter your garage, or your home.
3. While you are responsible for the amount still owed on the car note, as well as responsible for any fees involved in repossessing and auctioning the vehicle, if the car sells for more than the amount owed, which rarely happens, you are entitled to the difference.
4. The difference between the amount owed on the loan, for the repossession and auction, and the proceeds of the sale is the deficiency amount that you are legally obligated to pay.. You no longer have the car, you still owe on the loan, and you may be sued and the finance company will obtain a “deficiency judgment” which, in most cases, will include attorneys fees and court costs.
5. You have a right to remove at no cost your personal items that were in the car, but not attached to the car. For instance, the roof rack and stereo have to stay, but personal possessions and things like seat covers, floor mats, and other accessories can go with you.

You are Not Alone

It’s unfortunate, but automobile debt is exploding with around 7 million Americans at least three months behind on car payments at the end of last year. Among subprime borrowers, the delinquency rate is over 16%. Moreover, the average financed amount is just over $30,000, but the term for which the loans are written is now eight months longer, which significantly drives up the interest charges and the overall cost of the car. Serious delinquency is considered to be payments that are 90 days overdue, so there may be more payments that are considered late, but not yet delinquent.

Consumer debt is skyrocketing, and it’s not just automobile debt, but credit card debt, medical expenses, and student loans. Even though automobile debt constitutes 9% of the total consumer debt in the country, it is only part of the picture. Focusing on one detail pushes the overall financial picture out of focus. When you are behind on car payments, credit card payments, and student loan payments, everything can look pretty bleak.

Not Just One Kind of Debt

By the time you are 90 days behind on car payments, the problem is seldom just the automobile loan. Other types of debt make it difficult to keep up with payments. Whether these debts are medical bills, student loans, legal judgments, credit card debt, or being a cosigner for someone in default does not matter. Your overall financial picture can say a lot more than just one skipped payment. When your debt to income ratio is too high, and making all your minimum payments is impossible, then it is time to consider a chapter 13 or chapter 7 personal bankruptcy.

How can filing bankruptcy help me keep my car?

Bankruptcy is a federally protected process whereby debtors can shed or modify their debts. You may be able to keep your automobile in bankruptcy when you are facing repossession otherwise. This is thanks to a process called the automatic stay which immediately holds all collection or legal actions against you. In the case of a chapter 13 bankruptcy, it is possible to cram down the value of the automobile to current market value and reduce the interest rate to the  “Till rate” which is approximately 6% (the link is talking about mobile homes, but the principle is the same), thus reducing your payments. In chapter 7, it is possible to do a 722 redemption to reduce the amount owed on the vehicle to current market value. It may sound counterintuitive, but this one-time payment is accomplished with a 722 loan. While the loans may be higher in interest, you may be paying less overtime because of the depreciation of the vehicle.

As an added plus, the automatic stay of bankruptcy is a reset button if your driver’s license has been suspended for a debt-related reason. Please note, that this automatic stay will not stop the suspension that is based on criminal charges such as DWI or other infractions. While the automatic stay is in effect, you will still need to make insurance payments, so budget enough to keep your insurance up-to-date.

We Want to Help You Save Your Car!

At Van Horn Law Group, we are here to help. Our West Palm Beach and Fort Lauderdale offices are open Monday through Saturday, and by appointment on Sunday. We want to make it easy for you to come to see us, and your initial consultation is absolutely free. We are known for treating our clients with respect and compassion, and fiercely advocating in their best interests. When you are overwhelmed with debt, behind on car payments, and feel as if your life is spinning out of control, you need wise and experienced counsel to get you through the rough patch. Call us today, make an appointment, and come see us – we can help you.