Financing a big purchase like a vehicle makes it easier for you to maintain a budget. By using the property as collateral, you may also be able to purchase a nicer vehicle than you could otherwise have with your current resources.
The downside of a financed vehicle purchase is obvious. If you fall behind on payments, the bank that financed your purchase will inevitably repossess your financed vehicle to recoup some of its losses.
Your vehicle is vulnerable from the moment you miss a payment, but you will likely receive notice that they intend to start the repossession process. Filing for personal bankruptcy could be a way to protect yourself from the loss of your vehicle.
The automatic stay temporarily stops repossessions
As soon as you file for bankruptcy, you receive the benefit of an automatic stay. Creditors can no longer continue collection activity against you until either they pursue a special hearing or the courts rule one way or the other on your bankruptcy. As long as your vehicle is not already out of your possession, an automatic stay can prevent the immediate loss of the vehicle.
Bankruptcy can make it easier to negotiate better terms on your loan
When you file for bankruptcy, you have the opportunity to reaffirm secured debts like car loans. The lender may be willing to work with you on certain terms, like changing your payment amount or even the length of the loan repayment. However, in a Chapter 7, they are not required to change the terms of your loan. Rather than losing your vehicle, if you worry about repossession, it may be time to start looking into different ways to protect yourself. A Chapter 13 can force the creditor to take payments on your terms at a reduced interest rate over a period of up to 5 years. Talk to a bankruptcy attorney to find out whether Chapter 13 might be helpful for you.