Purchasing a financed vehicle means accepting a payment schedule. Typically, those buying financed vehicles have to make monthly payments. The vehicle serves as collateral for the loan. If the borrower falls behind on their financial obligations, the lender may be able to repossess the vehicle. If that happens, the owner of the vehicle loses their personal transportation and may suffer significant setbacks.
People dealing with a drop in income or a sudden increase in financial responsibilities may have to make difficult choices. They may delay certain payments. Making a payment on a vehicle loan can be less important than paying a mortgage or buying groceries. How many payments does an individual have to miss before their vehicle is at risk of repossession?
One missed payment can lead to issues
When people finance their homes, there are laws that protect them from unfair creditor actions. They don’t have to worry about a lender foreclosing on their home two weeks after a single missed payment. Typically, people have to miss four mortgage payments before foreclosure is a legitimate concern.
Those protective rules may give people a false sense of security about vehicle loans. They may believe that they can miss a payment or two without risking repossession. Unfortunately, vehicles do not have the same legal protections that primary residences do. Instead, lenders can theoretically begin the repossession process after as little as a single missed payment.
The terms of the initial financing agreements influence how many missed payments are necessary for a lender to initiate repossession. Typically, they do not need to provide advance notice to the vehicle’s owner. Some people only realize they are at risk after they lose their vehicles.
Bankruptcy can help prevent repossession
People who have missed vehicle payments and who worry about losing their vehicles can prevent repossession by taking legal action. A personal bankruptcy filing can protect those with debts by granting them an automatic stay.
After a borrower files for bankruptcy, lenders and creditors cannot engage in collection activity until the courts resolve the bankruptcy filing. Repossession efforts typically come to a halt. The borrower may be able to renegotiate the terms of their vehicle loan so that they can catch up and remain in good standing. They may also be able to eliminate other debts to better manage their monthly budget.
Understanding the rules that govern debt collection, including vehicle repossession, can be beneficial for those dealing with financial challenges. Personal bankruptcy may be a smart decision for those at risk of vehicle repossession and other aggressive collection efforts.
