If you’re facing financial problems and are behind on your car payments, there are steps you can take to avoid repossession. This can prevent your vehicle from being towed and can also help you save your credit score.
Getting a loan modification or asking your lender for a car loan forbearance are two options you can consider. This will allow you to keep your vehicle and work with your lender on a payment plan that’s affordable.
1. Get a Loan Modification
If you are facing repossession, getting a loan modification is one of the best ways to avoid it. It can help you resolve your missed payments, defaults or financial crisis while keeping your home.
A loan modification is an agreement between you and your lender to change the terms of your mortgage so that it becomes more affordable. It could include reducing your interest rate, suspending your payments or extending the term of your loan.
However, a loan modification may cost you more money and affect your credit score. That’s why you need to carefully consider the terms and determine if it provides any financial benefit for you.
If you are having problems negotiating with your lender, you might want to consult a loan modification lawyer. They can help you make sure your lender follows loss mitigation laws and that they respond to your requests in a timely manner.
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2. Work With Your Lender
If you want to avoid repossession, the best thing you can do is work with your lender. This will help you keep your finances in order and may even save your car.
In addition to helping you with your credit, working with your lender is also a good way to build a long-lasting relationship that will serve you well when times get tough. Remember, your lender is in business to earn profits, and they want to see you succeed.
Rather than waiting until you miss a payment, contact your lender as soon as possible to discuss your financial situation and ask for a deferment or modification of your loan.
In addition, you should be prepared to provide documentation of your financial situation and ability to make payments. Providing these documents will go a long way to convincing your lender that you can repay your debt and will not default on your car loan.
3. File for Bankruptcy
When you have a lot of debt and not enough money to make ends meet, filing for bankruptcy can be an effective way to avoid repossession. It also helps you to get a fresh start financially.
Those who file for Chapter 7 bankruptcy can erase unsecured debts such as credit card balances and medical bills. Then they can liquidate nonexempt property such as family heirlooms (collections with high valuations) and second homes to repay some of their debt.
Once you have filed for bankruptcy, a court order known as an automatic stay stops creditors from collecting any further debts. This includes repossessions of vehicles, although it depends on whether the repossession process has already started when you file for bankruptcy.
When you file for Chapter 13, you can create a debt repayment plan and work with your lender to pay off your car loan within the bankruptcy. This is a much less stressful and lengthy option than a repossession, but it still can result in your losing your car.
4. Reinstate Your Loan
If you haven’t already defaulted on your loan, reinstatement may be the best way to avoid repossession. It typically involves making up your past-due payments in a lump sum.
Depending on your state, this right might be built into your loan contract or required by state law. To find out if your state offers this option, contact your attorney general’s office or local consumer protection agency (see State Consumer Protection Offices).
Even if your loan agreement does not give you the right to reinstate your auto loan, your lender might have a policy that allows it. If so, you can ask about it and get a reinstatement quote.
Repossession stays on your credit report for seven years, and the sooner you get it off, the better. This is because it can have a negative impact on your credit score and make it harder to qualify for credit in the future.