Once you get behind on your car payments, it's often difficult to get caught up. Late payments may lead to your car being repossessed from your home or your work. If you want to keep your car, you must get caught up on your payments. If you can't afford to keep the car, a repossession alone might not solve your problems; you're still under contract to make the payments, and the bank may take legal action if you don't.
Your loan contract likely requires that you still make payments even if your car has been repossessed. If the bank sells your vehicle at an auction, you'll be liable for the difference between the remaining loan amount and the sold price.
Your Loan Obligation
Once you sign a loan contract, you are obligated to pay the entire amount owed on your car. Repossession doesn't negate that contract. If you can't afford the car and the bank repossesses it, you still owe the balance of the loan. Typically, the bank sells the car at auction if you can't afford to pay the past-due balance. You are obligated to pay the loan company the difference between what you owe and what the car sells for.
For example, if you owe $10,000 on your car but it sells at auction for $6,000, you still owe the loan company $4,000. The lender may let you make payments, but it's more likely the company will sue you for the amount in full.
Reinstatement of the Loan
If you want to keep your car, work with your auto loan company to modify your existing loan to a payment you can afford. This reinstatement of the loan typically works late payments into the new amount owed, although some companies might require an upfront payment of the past-due amount plus late fees to move forward with a modification. Some reinstate the existing loan once the past-due amount is paid, meaning you don't have a lower monthly payment, but you at least get your car back. In some cases, the loan company only returns the car if you can pay the value of the loan in full; they won't accept more payments.
Filing for Bankruptcy
Filing bankruptcy after a repossession can help you get your car back. However, you still must pay the remaining loan amount plus past-due payments in most cases. You must file quickly after a repossession; if the bank sells your car before you file bankruptcy, there's no way to get it back.
If you file a Chapter 7 bankruptcy, the judge typically requires you pay the past-due amount, then allows you to reaffirm your car loan with the bank. Or, you can choose to let the car go, meaning you no longer have the car but you also no longer have the debt – the Chapter 7 bankruptcy protects you from collection efforts from the bank.
With a Chapter 13 bankruptcy, you pay the court an amount monthly to cover all your past-due accounts, including your car. You then reaffirm your loan with the bank, picking up your payments from the date of the bankruptcy. You still pay the full amount, but you pay part to the court to disperse to the car loan company and the new payments directly to the bank. You must stay current on both payments or the judge can dismiss your bankruptcy, removing all bankruptcy protection.
Other Options to Consider
If your bank won't work with you on a loan reinstatement after a repossession, look for a lender to refinance the loan with a lower payment. You still have to pay the full amount owed on the car, but the payments will be more manageable.
Also, you can talk with your car loan company about a voluntary return of the vehicle. The lender may ask you to drop the car off at the bank or a dealership, and you typically sign away your rights to the car. Some banks release you from the remainder of the loan, while others require you to pay what's left over after they sell the car at auction. It's best to hire a lawyer to help you through a voluntary return to make sure you won't have to continue to pay for the car.