During the height of the recent recession, it was reported widely that Americans were not buying cars and that the average car on the road was at least 11 years old. However, during the past two years, that trend has been reversed and Americans are now buying cars in almost record numbers. The number of cars being sold per year is approaching 16 million in this country. Unfortunately, according to a recent article in the Pittsburgh Post-Gazette , a record number of Americans are falling behind with their car payments. Transunion, one of the three credit reporting agencies, has reported that car loan delinquencies have climbed almost 13 percent in the third quarter of 2014, as compared to the third quarter of 2013. This involves car payments that are behind by 60 days or more. This is an important number, because usually when the car payments fall behind by 90 days or more, the repossession of the vehicle is triggered by the lender. Very few lenders allow the loan to go more than 90 days delinquent without sending out the re-possessors who will normally come in the wee hours of the morning to repossess the vehicle. This brings up the question as to what to do when you fall behind with car payments. This would bring up the following options:
- Do not hesitate to contact the lender by phone or email to try to work out an acceptable repayment plan directly with the lending bank or institution. In some cases, the lender is willing to take the delinquent payment and put them at the back of the loan to bring the loan fully current. In other cases, the lender with accept the regular monthly payment plus some additional amount each month until the loan has been brought fully current. Therefore, it is never a bad idea to keep in touch with the lender to see if anything can be worked out.
- If the lender is not willing to work with you and especially if you have a high interest loan, it may be possible to file a Chapter 13 reorganization plan. If you file Chapter 13, the automobile loan can be paid back in full through the Chapter 13 Plan over a term of 60 months, which is five years. If your interest rate is above 6%, the loan can be re-amortized for a term of five years and the interest rate can be lowered to as little as 6% per year. This would then bring the account fully current, and would lower the monthly payments going forward. You would still keep the motor vehicle and the lender would still be repaid the entire amount that is owed, but you would no longer be delinquent with the payments and the interest would be lowered and the regular monthly payment each month would therefore be lower.
- If you do fall behind 90 days or more and the car is repossessed, the lender is only required to hold the car for 15 days for the resell it at the auto auction. Normally, they will not release the car back to you unless the entire car loan is paid in full within those 15 days. Then, the car is taken to the auto auction where only dealers can bid. The car is normally sold for approximately half the amount that is owed and then there is a deficiency remaining which would be several thousand dollars. The lender will then contact you to make payments on this delinquent balance remaining or may even file a lawsuit and take you to court. If this happens, your credit will be ruined and at that point you could consider filing a Chapter 7 Bankruptcy which would eliminate this deficiency balance along with other debts such as charge cards, personal loans and medical bills.
If you see yourself falling behind on your automobile payments and facing some of these situations, please do not hesitate to give us a call at Steidl and Steinberg to discuss your particular situation in greater detail.