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How To Avoid Repos...

April 20, 2015 14:25

Car repossession is a situation when a borrower fails to make his/ her monthly loan payments or is found guilty in any way, and the lender reclaims the car. The repossession laws vary country-wise, but usually a borrower gives security interest to the lender that means the lender has a right to repossess the car without prior notice, if he/ she is found guilty of not paying the loan amount. The lender can report the repossession to the credit agency, and that could be extremely destructive to borrower’s credit score.

How to avoid car repossession during bankruptcy?

However, there are some alternatives to avoid repossession of cars in India, and filing for bankruptcy is one of the most common methods. In the Indian legal system, we don’t have finely defined law on corporate bankruptcy that signifies a condition or lack of ability to serve a demand of a creditor or lender. Though, it is defined as the dissolution, insolvency and liquidation.

Automatic Stay

If you file for bankruptcy before repossession of your cars in India, most creditors are prohibited for their collection activities, called the automatic stay. It can temporarily avoid car repossession. But, once your case gets closed, there will be no stay and the lender can reclaim the car. Although, the lender, too, can file a motion to remove the automatic stay and ask for court permission for vehicle repossession.

Negotiate new loan tenure or term

The temporary stay gets you some time to negotiate with the lender on new loan term and avoid repossession. Bankruptcy discharge stamps out your loan liability, so the lender gets more incentive to settle new loan tenure, especially when the car’s worth is less than the loan balance. You can negotiate interest rate and loan balance, too.

Cure the default

The automatic stay also enables you to cure your current loan or other default. If you can pay the overdue loan amount, the lender won’t have any good reason to repossess your car.

Redeem your car 

You can get rid of the lender’s lien by redeeming the car. It means you buy the car back at its reasonable market value. You will save money, if your car value is significantly less than your loan balance. However, this redemption works only when you can pay a good amount to the lender.

Buy back at the auction

If the lender puts your car at a car auction, bit for it and buy it back.  However, you still remain liable for the loan balance.

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