As the coronavirus continues to take more American lives and livelihoods, the number of Americans seeking unemployment benefits has skyrocketed to 36 million. Yet those seeking unemployment are finding it difficult to file claims or even get through to a human representative. Meanwhile, states appear to be running out of money to fund unemployment claims as the companies that laid off their workers sink deeper into debt and begin filing Chapter 11 bankruptcy.
I Can’t Afford My Car Payments
Many Americans who have been laid off of work are now struggling to navigate a clogged unemployment system, get food stamps, and otherwise make payments on their financial obligations. States, in order to pay out unemployment claims, operate trusts on behalf of potentially unemployed workers. These trusts are currently depleted and the states that are facing the worst economic struggles are now petitioning the federal government to help fund the unemployment trusts.
In other words, if you’re struggling to make mortgage or car payments right now, you’re not alone. Can you still default on your car loan during this time? The answer is yes, but there are some exceptions to this rule.
What Should I Do if I Can’t Afford Car Payments?
The reason why so many car loans will end up in default is due in large part to the fact that many Americans are afraid to talk to their lender. You shouldn’t be. Lenders everywhere right now are fielding calls from concerned borrowers concerning the state of their loan. While there is no legislation in place to protect Americans from car repossession like there is for foreclosures, car lenders would rather not terminate these loan contracts and then auction the cars off in a market where everyone is struggling to make ends meet. This would result in severe losses that could be ameliorated by a simple deferment agreement.
What would a deferment agreement look like? Lenders are now offering special forbearance programs to individuals and families who have lost income due to COVID-19. Forbearance means that you may be able to reach an agreement with your lender that allows you to not pay during the months that you’re unemployed. However, little is known concerning what will happen after the COVID-19 quarantine has been lifted. Borrowers could face bills for the entire arrearage, though it seems unlikely that the lender would benefit from forcing that choice onto a borrower in this market.
So your first order of business will be to contact your lender, discuss your job situation, and ask about what programs they’re offering for those who have been economically displaced by COVID-19.
Why Shouldn’t I Panic?
Even if your lender isn’t advertising special deferment programs, you must contact them and discuss your income loss. They will very likely offer you some kind of deferment program that allows you to pause your payments while you’re experiencing economic hardship. While it’s true that they could declare your loan in default and then repossess their car, there are several reasons why this would only be a last resort.
Firstly, most lenders don’t like declaring loans in default. While there are some notable exceptions (such as Buy Here, Pay Here lots) who can resell the same vehicle over and over and will foreclose after one missed payment, the majority of lenders don’t operate their businesses like that. Why not? Because it destroys customer relationships, costs a good deal of time, and they will lose a considerable amount of money than they would have if their borrower simply paid off their vehicle.
Hence, paying off your vehicle is in everyone’s best interests right now.
When is it Time to Panic?
It’s never time to panic because you will always have options. But some of these options are more aggressive than others.
While lenders are offering forbearance programs to borrowers right now, not all borrowers will necessarily qualify for their forbearance program. This means that those who are already in debt or behind on their payments or the lender otherwise doesn’t think your situation will change enough in a few months to make payments and repay arrearages could still find their loan in default. The problem, of course, is that the lender has considerable power to determine who does or does not qualify for loan forbearance.
Lenders will be looking at your credit score, your assets, and your current job situation while determining who qualifies for forbearance. Different lenders will have different credit requirements for offering forbearance. That means that at least some folks will find themselves in default on their auto loans. If that’s the case for you, then bankruptcy may be an option.
I Don’t Qualify for Deferral
There will be many Americans in this position soon enough. Not everyone will have a credit score good enough to be offered a deferral on their car loan. Those who have established sterling credit will have more options for bargaining with their lender. Those who don’t, still have options, albeit aggressive ones.
If you don’t qualify for forbearance, then you can still stop the repossession by filing for either Chapter 7 or Chapter 13 bankruptcy. In this market, Chapter 13 bankruptcy offers you the best toolset for keeping your car. Why? Because the market for used cars has recently crashed causing the value of all cars to drop. This means that several loans that had equity are now underwater meaning the value of the loan is greater than the value of the car.
Those who file under Chapter 13 may be able to get their loan amount reduced to the current value of the car (which is likely lower than it was three months ago). This is known as a cramdown and will allow you to pay off the value of the car without paying off the loan amount.
I’m in Financial Trouble
Don’t worry. There’s a solution to your problem. Call Butcher Law Office, LLC today and schedule your free hour-long consultation. We can help you keep your car and settle your debts.