Having your car repossessed can be catastrophic. When repossession happens, it’s usually because you’re already struggling financially. Suddenly, you may find yourself without the transportation you need to keep income flowing, whether that means driving to work or going on job interviews. And, depending on where in Alabama you live, you may also need your vehicle to take your children to school, grocery shop, get to medical appointments and more.
Unfortunately, many Alabama residents are at risk of vehicle repossession. While nationwide just 4% of car loans are in default, that rate is 9% for the state of Alabama. And, in some areas, such as Lauderdale County, Etowah County, and Calhoun County, the rate is even higher. Under Alabama law, a lender with a security interest may repossess property as soon as a single payment is past-due, unless the contract says otherwise.
The good news is that Alabama law also requires that a creditor that repossesses your car must provide you with notice before disposing of the vehicle. That notice includes information about how you may be able to get your car back.
Alabama Notice of Intent to Sell Collateral and Right of Redemption
The notice required before sale of collateral includes information about when and how the property will be sold and what will happen after the sale. The short version is that if the vehicle sells for more than the combined total of the amount due and the costs of repossession and sale, you’ll get the extra money (unless there is another lien or legal obligation in play). If the proceeds of the sale are less than the combined total of the amount due and the costs of repossession and sale, you will still owe the difference.
The notice must also tell you when and where the property will be sold, and whether it will be sold through a public auction or private sale. And, most importantly, you must be advised that you can reclaim the vehicle at any time before the sale by paying the full amount due–that is, the entire balance of the loan and any outstanding fees, plus costs incurred in the repossession and preparation for sale. The notice must also contain information about whom to contact to find out exactly how much you would have to pay to redeem the repossessed vehicle.
If the vehicle is to be sold at public auction, you may also attend the sale and bring bidders to attempt to purchase back the vehicle. Note, however, that while you may be able to reclaim the vehicle for less with less cash on hand, you will likely still ultimately be responsible for the difference between the purchase price and full balance plus costs.
Bankruptcy and Repossessed Vehicles
Of course, if you weren’t able to keep up your scheduled car payments and you weren’t able to catch up your past due balance in time to avoid repossession, chances are that you don’t have the resources to either pay off the loan in full plus costs or sponsor the winning bid at auction. That doesn’t necessarily mean that you can’t recover your vehicle. However, if you want to explore the possibility of using bankruptcy to get your car back after repossession, you’ll have to act quickly.
In most Chapter 7 and Chapter 13 bankruptcy cases, an automatic stay is entered as soon as the bankruptcy petition is filed. The automatic stay is an order that prohibits most creditors from taking any collection action while the stay is in effect. That includes collection letters, collection calls, filing lawsuits, moving forward with lawsuits already filed, garnishing wages, repossessing vehicles, disconnecting utilities, starting eviction proceedings, commencing foreclosure actions, and selling off collateral for secured loans such as homes and cars.
In other words, the automatic stay can halt the disposition of your vehicle, even if the creditor has already taken possession. However, without further action, this is a very short-term solution.
Chapter 7 and Repossession
The options in Chapter 7 bankruptcy are limited. While you may be able to negotiate to purchase the vehicle outright or to arrange a new payment plan with the lender, there are obstacles in both cases. Purchase of the vehicle outright (known as redemption) is expensive, and may result in non-exempt equity in the car. To reaffirm the debt and enter into a new payment arrangement, the creditor must agree–which is typically a tough sell when the creditor already has possession of the vehicle. And, although the automatic stay typically remains in effect for the duration of the Chapter 7 case, the automobile lender may file a Motion for Relief from Stay and be granted court permission to proceed with the sale.
If there is significant non-exempt equity in the car, the bankruptcy trustee may require that it be returned to the bankruptcy estate. But, that generally doesn’t help the bankruptcy petitioner reclaim the vehicle, as the trustee will typically sell the car and distribute the non-exempt portion of the proceeds to creditors.
Chapter 13 and Repossession
Chapter 13 is typically a much better option for avoiding repossession. We work with clients every day to help reduce their overall monthly expenses while also keeping their vehicles. A structured Chapter 13 will reorganize your debts to make your expenses fit within your income.
The practical knowledge to take away is that “an ounce of prevention is worth a pound of cure.” In 99% of situations, you will know if your vehicle is about to be repossessed. Don’t wait! Come and visit us at Bond & Botes, or give us a call/email, to help protect your property and your income. We can have a case prepared and filed very quickly in order to prevent a repossession from happening in the first place.
An experienced Alabama bankruptcy attorney like the ones at Bond & Botes can help you assess your situation, including monthly income, other debts, the value of your car, and other factors to help determine whether bankruptcy might be the right solution for you.
Nick Gajewski is an Associate Attorney at the Bond & Botes Law Offices in Florence and Haleyville, Alabama. He holds a Bachelor of Arts from the University of Alabama, and a Juris Doctorate from the University of Alabama School of Law. Nick joined the team of Bond & Botes bankruptcy lawyers back in 2014 and has been helping clients navigate financial issues since. Read his full bio here.