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Can bankruptcy protect a home or a financed vehicle?

On Behalf of | Nov 15, 2023 | Bankruptcy |

Some of the most valuable assets people own are too expensive for them to purchase directly. Vehicles and real property are both excellent examples. Individuals often cannot afford to make a cash purchase of a home or a vehicle, so they must apply for financing.

The loans that they obtain are secured financial instruments because the property they purchase serves as collateral for the loan. If a borrower defaults on their mortgage or vehicle loan, the lender can take action against the collateral property.

Only a few missed mortgage payments could be enough to trigger foreclosure efforts. Many companies that provide vehicle loans include terms in their contracts that allow them to repossess a vehicle after just one or two missed payments. Those who have fallen behind on secured financial obligations are often eager to protect their assets. Can bankruptcy prevent foreclosure or vehicle repossession?

The automatic stay can be a major help

There are many ways that bankruptcy can benefit those struggling to meet their financial obligations. One of the most important benefits of bankruptcy is the automatic stay. The courts send notice to the credit bureaus the same day that someone files their paperwork. Creditors, including mortgage companies and lenders providing vehicle financing, will have to temporarily halt all collection activity. That will include foreclosure and repossession efforts. The temporary cessation of collection activity can give someone an opportunity to rework their budget and potentially catch up on what they have missed.

Bankruptcy can help people renegotiate

Lenders worried about taking a loss on a loan will often cooperate with someone going through bankruptcy. They may agree to change some of the terms for a mortgage or vehicle loan. In fact, if someone files a Chapter 13 bankruptcy, reworking financial obligations is a standard part of the process. People may be able to reduce their monthly payments, change the interest rate on the loan or even move the missed payments to the end of the loan instead of needing to pay them all at once to bring the account back into good standing. Any of those changes could help someone avoid repossession or foreclosure.

Finally, being able to discharge other debts can make it easier for someone to work large monthly payments for a vehicle or a home into their budgets. For these and a number of other reasons, seeking legal guidance to learn more about bankruptcy can help those worried about the loss of their most valuable assets due to short-term financial challenges.