For many of my clients, filing bankruptcy is designed to wipe out personal debt, deal with lawsuits or medical bills, or to stave off foreclosure. It is seldom because of their car payments.
However, many of them do have loans on their cars, loans for which they are current, and for vehicles they intend to keep. I will post a future entry on reaffirmation, the strange and confusing process by which car loans can be “ridden through” (pardon the pun) the bankruptcy.
It is very surprising for these clients when their monthly car loan statements simply…stop. It is as though the vehicle lender is no longer interested in receiving payment!
Of course, if you want to keep your car, you will need to keep making payments. The reason the finance companies stop sending statements is not because they don’t want to get paid; it is because of a special bankruptcy rule called the Automatic Stay.
This rule is the powerful shield provided by a bankruptcy. It provides that creditors may take no action to collect a pre-petition debt during the bankruptcy process. A dunning letter (like collection demands), a billing statement, or a phone call from a creditor may violate this rule, and can lead to hefty sanctions.
To avoid violating the Automatic Stay, lenders usually cease sending statements, or send special statements reading “for informational purposes only.” As a corollary to this, automatic debits often stop.
To avoid delinquency on the car loan, you should contact the lender and arrange to continue making “voluntary” payments. The payments are “voluntary” because they have no right to bill you or to collect money. However, if you do not make the payments, as soon as the bankruptcy ends the lender can repossess the vehicle.
If you file for bankruptcy protection and want to keep your car, you should talk to your attorney. You may qualify to redeem the vehicle, or it might be in your best interest to reaffirm the debt. In most cases, you will need to make arrangements with the finance company to continue making payments, or you may find yourself without transportation when your bankruptcy ends.