What Are the Factors Responsible for the Increasing Rates of Vehicle Loan Defaults and Repossessions?
Many people in the US can’t afford to pay outrightly for their vehicles. They often resort to auto loans to purchase the car of their choice. They would need to make periodic payments to the lender until the loan is repaid. If the borrower defaults in payment, the lender is free to repossess the vehicle depending on the applicable Repossession Laws.
This arrangement works for most people, especially low-income earners who would be unable to own cars otherwise.
But recently, there have been several media reports indicating an increase in the rates of auto loan delinquencies and repossessions across the US. Experts in the vehicle industry have provided different explanations for this trend. But the one thing the reports agree on is that the default and repossession rates increased as the COVID-19 pandemic eased and the various stimulus packages from the government and repayment concessions from loan companies to lenders ended.
The pandemic’s effects on the national economy are still being felt today. Many who lost their jobs in that time are yet to bounce back. Without the extra funding from government support programs, such people would likely struggle to make ends meet, and their car payments would also suffer.
If you’re one of those struggling with outstanding auto loans understanding the root cause of the problem might help you as you seek to protect your assets. Join us as we explore other factors contributing to the problem and possible strategies to avoid car repossessions.
Other Reasons for the Increasing Auto Loan Defaults and Repossessions
The high inflation rate in the economy is hitting lower-income individuals and households the most. Those in this category are also known as subprime borrowers. With their limited income, they have to spend more to get the necessities such as food, electricity, housing, and clothing. After these expenses, there may be little or no money left to make car payments which could lead to payment defaults and eventual repossession.
Increase in Demand and Limited Supply of Vehicles
According to Fox Business, the prices of new and used vehicles surged in 2022 due to a semiconductor shortage in the US. This shortage was caused by the pandemic-induced supply chain disruptions across the world.
It affected the number of vehicles available for purchase. But consumer demand remained constant despite the scarcity of available vehicles in the new and used car market. The twin forces of increased demand and reduced supply drove new and used car prices higher.
Debtors are thus compelled to take out car loans at higher rates. This, coupled with the increased cost of living, would make loan repayment difficult.
How Vehicle Repossession Works After an Auto Loan Default
Although vehicle repossession laws vary from state to state, they generally allow lenders to repossess vehicles when the borrower defaults on loan payments with or without prior notice.
In Georgia, repossession of vehicles by debtors is governed by the Georgia Code. Title 11-9-6 empowers a secured lender who has rights over the property used as collateral, in this case, the vehicle, to do the following if the borrower defaults:
- Take possession of the vehicle.
- Render the vehicle unusable on the debtor’s premises. This means the lender can lawfully remove the vehicle tires, lock up the wheels with a wheel clamp or do anything else that could prevent the debtor from using the vehicle.
The lender or repossession company does not need to send you a repossession notice before they execute the repossession. They also do not need to get a court order or go through any judicial process to repossess the property in question as long as they proceed without breaching the peace.
How to Avoid Repossession
A repossession is imminent if you’re falling behind on your car loan payments. You could wake up one day to find your car gone if you don’t take steps to stop or postpone the repossession before it occurs.
There are several options you could explore that could help ease your burden. You could approach your lender to see if they can modify the terms of the loan agreement and work on a more convenient repayment plan. You could also consider filing for bankruptcy to get debt relief.
The thought of filing for bankruptcy is dreadful for many people as they think of it as going flat broke. Understanding bankruptcy with the help of this guide will help you see that that is not the case.
Bankruptcy is a legal process that helps indebted individuals or companies with many outstanding debts get debt relief. Once a person files for bankruptcy, there is an automatic stay on all attempts by creditors or lenders to recover the amount owed.
In the context of vehicle loans, filing for bankruptcy stops all repossession attempts until the bankruptcy proceedings are complete. The lender is also prohibited from harassing you over the phone or filing a suit against you.
There are several forms of bankruptcy under US federal law, including Chapter 7 and Chapter 13 bankruptcy, and the procedure and implications of each one vary. But Chapter 13 bankruptcy appears to be a favorite among wage earners struggling with their vehicle payments and hoping to avoid repossession.
How Does Chapter 13 Bankruptcy Work?
Chapter 13 bankruptcy allows individuals with a low income to restructure their debts into a more manageable payment plan.
Under this form of bankruptcy, you get to keep your assets, including your vehicle, and get your creditors off your back as long as you continue making monthly payments as per your payment plan.
It is a reasonable option to explore and could help reduce the pressure of too many overdue bills and debts. If you’re considering bankruptcy, you can contact a skilled bankruptcy lawyer to help you navigate the process successfully.
How Can an Attorney Help?
While it offers a way out of outstanding debts, bankruptcy is a complex legal process. Working with an experienced bankruptcy lawyer can help you get the best out of the process.
Your attorney can help determine the form of bankruptcy that suits your situation or if it is right for you. This way, you don’t waste your time with the procedure when better legal options exist.
Bankruptcy also involves a lot of paperwork and court appearances. Your attorney can handle all of these on your behalf, so you don’t have to worry about making costly mistakes while preparing the paperwork.
If you’re dealing with outstanding debt and impending repossession, you need all the help and support you can get. Consider getting professional help from a skilled bankruptcy attorney who can help you find a legal way out of your financial issues.
We Can Help at Cherney Law Firm
If you have further questions about stopping repossession or the bankruptcy process, the seasoned attorneys at Cherney Law Firm are here to help.
We are a firm of experienced bankruptcy attorneys committed to helping those struggling with mounting debts and who will benefit from urgent debt relief.
Book a free consultation with us today. Let us help you develop a unique strategy that could help you retain your assets and pay your debts conveniently.