If you are experiencing financial difficulties and you have fallen behind on monthly payments, your assets may be at risk for repossession by the lender. Bankruptcy and repossession are both financially and emotionally challenging occurrences, and in an ideal financial situation it can be said that neither is a good option. However, asking which is worse: bankruptcy or repossession means you are not in an ideal financial situation. How do you determine whether bankruptcy or repossession is the better outcome for your financial situation?
What is Bankruptcy?
In a nutshell, bankruptcy is the legal process that a debtor or joint debtors go through in federal court to discharge their debts. This process is initiated by the debtor(s) with the assistance of an Oklahoma bankruptcy lawyer and is meant to secure a fresh start by eliminating most, if not all, of their outstanding debts. There are two types of bankruptcy for individuals: Chapter 7 and Chapter 13.
What is Repossession?
Repossession is when the lender takes possession of the collateral (your vehicle, business equipment, or other property) which was used to secure the loan. Repossession most often occurs when a lender repossesses the collateral because of multiple missed payments. When you fall behind on payments, the lender has the legal right to repossess the collateral and will come to your home or place of employment to take possession of it.
Bankruptcy Protection
When a debtor files for bankruptcy protection in Oklahoma, the automatic stay (insert hyperlink) goes into effect immediately. This stay prohibits creditors from taking any action to collect a debt from the borrower, including trying to repossess your collateral whether it is your vehicle, business equipment, or other property. There is no such protection in a repossession.
Your Credit Report is a Consideration
Bankruptcy and repossession are both going to negatively impact your credit score. Filing for bankruptcy in Oklahoma will reduce your credit score and it will remain on your credit report for ten years. However, once the bankruptcy process is complete, debtors can immediately begin rebuilding their credit score.
Repossession also has a significant negative impact on your credit score. It shows as a default on the credit report and will remain on the report for seven years. While a repossession remains on your credit report for fewer years than a bankruptcy, it will take a longer to rebuild your credit score compared to bankruptcy.
What Happens After a Repossession?
The other factor that must be considered is if the collateral is repossessed, what happens next? Once the lender repossesses the asset, the process is not over. Interest, late payment fees, attorney’s fees, and repossession fees will be added to the loan balance. The lender will then sell the collateral in an attempt to recover its losses. Cars and most pieces of equipment are depreciating assets. As is almost always the case, the collateral is sold for less than the debt that is owed. That means there is a deficiency balance on the loan and the lender can and will come after you for the difference in the sale price and the total loan balance. Unless you file for bankruptcy protection, the lender will continue to harass you to collect on the unpaid balance even though you no longer own or have possession of the collateral.
Answers to Your Repossession and Bankruptcy Questions
If your vehicle or other assets are in danger of being repossessed call 918.551.8955 to setup a FREE and confidential initial consultation with a bankruptcy attorney in Tulsa to answer your repossession questions and begin working toward securing your financial future.
*We are a debt relief law firm in Tulsa, Oklahoma.
*We help people file for bankruptcy relief under the Bankruptcy Code.
