Lost in the on-going debate about how tough bankruptcy ought to be are the voices of those who file for bankruptcy in emergency situations – to stop a vehicle repossession or a wage garnishment. I think that repossession and garnishment are even more of an emergency than a home foreclosure. In Georgia, at least, a homeowner has at least 30 days warning, certified letters announcing the foreclosure and dozens of flyers from real estate investors and bankruptcy lawyers.
Although some people do wait until the last minute to deal with their foreclosure problem, home foreclosure in Georgia should never be a surprise.
Repossession and wage garnishment are much more likely to sneak up on a consumer. In this post, I want to discuss car repossession and answer a few questions that I hear frequently. I'll address wage garnishment and its unique problem later this month.
In Georgia, a secured lender can use "self help" (i.e., repossession) to recover collateral if the purchaser goes into default of the promissory note and security agreement. Secured debt is common – not only is your car considered secured collateral for the installment note you signed, but most furniture, jewelry or appliances you buy on installment is also considered secured debt.
Secured debt differs from unsecured debt like credit cards or medical bills in that the collateral you bought (the car, the furniture, the jewelry) is tied directly to the installment note. If you don't pay, the creditor can demand that you surrender the collateral in full or partial satisfaction of the debt.
Typically, you do not see repossession of furniture or jewelry because the secured creditor cannot get to the collateral without entering your house. These creditors can, however, file a Complaint for Personal Property Foreclosure and obtain a Court Order requiring you to turn over the collateral.
Car or truck repossession can take place without any risk of disturbing the peace. If you are in default of your note, a repo man hired by the lender can show up at your house in the middle of the night, or at the parking lot of your job or whereever he can find your car, and he can grab your car.
Your car is then towed to a storage lot, and the lender will send you a "10 day letter" advising you that you have 10 days to cure the default (usually this means pay off the car) or else the car will be sold at auction after the 10 days elapses.
On more than one occasion, I have received a frantic phone call from a potential client who just found out that a repo man is looking for her car, or perhaps that the repo man is in the driveway right now about to tow that car away.
What exactly can a bankruptcy do?
Firstly, if your car has not yet been grabbed, the filing of a bankruptcy will stop any threat of repossession. A repo after the filing will be void and the lender will be ordered (in most cases) to return your vehicle. The automatic stay created by your bankruptcy filing suspends the right of the secured lender to use Georgia law's self help provisions.
Most lenders will honor a notice of bankruptcy, although some will grab the car anyway and then will hire a lawyer to argue before the bankruptcy judge. In most cases, the judge will order the lender to return the car, and may award damages against the lender and/or the repo man. The judge will not likely order an immediate release of the vehicle if you do not have valid insurance on your car or truck.
If you are two to three months behind and you sense that a repo is on the horizon a bankruptcy filing will stop the immediate threat. However, if you do not maintain insurance on the vehicle or if you do not offer adequate protection to the lender in the form of a viable Chapter 13 plan or a proposal to pay off or refinance (redeem) the vehicle in Chapter 7, the secured lender will force the issue by filing a motion to lift the bankruptcy stay so that State law remedies may be enforced.
Is it appropriate to "hide" a vehicle while you contemplate or otherwise prepare for a bankruptcy filing? This is a tougher question. Hiding a vehicle from a secured creditor is improper and can give rise to civil or even criminal penalties. On the other hand, is it reasonable if you need a couple of days to get your pre-filing certificate, put together the money to file a bankruptcy or otherwise prepare yourself for filing?
The loss of your car, even for just a few days, can yield catastrophic consequences – the loss of a job, trouble getting the kids to school, problems getting medical care, etc. More than a few bankruptcies have and will be filed by debtors trying to stop repossessions. Many of these debtors do not enter the bankruptcy "market" until the last minute and their focus is entirely upon saving their cars and not on "abusing" the bankruptcy system.
[tags] bankruptcy and vehicle repossession, car repo in Georgia, stopping vehicle repossessions [/tags]