Repossession is the legal process by which a lender takes back (repossesses) personal property. When a lender attempts to take back real property, the procedure is called foreclosure. When a lender attempts to take back personal property (as opposed to real property), this is called a repossession.
By far the most common example of repossession deals with motor vehicles. The majority of borrowers do not have the resources to walk into a dealership and pay for a vehicle outright. So they take out a loan, which loan is then secured against the vehicle they would be purchasing.
The borrower is required to make monthly payments on the vehicle loan until the loan is paid in full. In the event that the borrower is unable to make his required monthly payment, then the lender would have the right to repossess the vehicle against which the loan is secured. The lender may work with the borrower to allow him to catch up whatever payments were missed, or the lender may elect to repossess the vehicle.
A Chapter 13 Bankruptcy will stop a vehicle from being repossessed and allow the borrower to catch up the missing payments over a Plan that can extend up to 60 months. If the borrower purchased the vehicle in question more than 910 days prior to the bankruptcy being filed, then the borrower can do something in Chapter 13 Bankruptcy called a “cramdown”. Simply put cramdown means that the borrower pays the lender what the vehicle was worth at the time the Chapter 13 Bankruptcy was filed, as opposed to what was owed on the vehicle at the time the bankruptcy was filed. For example, if the vehicle was worth $5,000 at the time the bankruptcy was filed, but the lender was owed $8,000 at the time the bankruptcy was filed, then, so long as the borrower purchased the vehicle more than 910 days prior to the bankruptcy being filed, the borrower would only pay $5,000 for the vehicle.
If the borrower had the vehicle for less than 910 days when he filed bankruptcy, he might still be able to lower the vehicle payment by stretching out the repayment time. For example if the borrower only had 36 months left to go on the vehicle loan at the time he filed bankruptcy, he can stretch out the 36 months to 60 months. So even though he cannot reduce what he owes, he can lower the amount of the monthly payment by paying out the balance owed in full over a longer period of time.
A borrower can either file a Chapter 13 prior to a repossession and stop the repossession or subsequent to a repossession to get the vehicle back. Under Michigan State law a lender who repossesses a financed vehicle must hold on to the vehicle for a minimum of ten days before selling it at auction. So long as the borrower files for Chapter 13 Bankruptcy prior to the auction, the lender must return the vehicle back to the borrower.
In the event that the borrower cannot afford the vehicle even under a Chapter 13 Plan, then the borrower may elect to file a Chapter 7 Bankruptcy to eliminate the “deficiency balance”. The deficiency balance is the difference between what was owed on the vehicle at the time of repossession and what the vehicle sold for at auction. In addition this deficiency balance might also include repossession costs and auctioneering costs. Provided the borrower does not earn too much money which would disqualify him from Chapter 7 Bankruptcy, and provided the borrower did not previously file a Chapter 7 within eight years prior to the new Chapter 7, then the borrower could eliminate the deficiency in Chapter 7 and protect himself from potential collection action such as a wage garnishment.
If you have had property repossessed or if you fear your property may be repossessed due to your inability to make timely payments, contact Joseph L. Grima & Associates P.C. to protect your interests.