By Mark E. Henze

Colorado is a self-help repossession state. This means that if you are behind on your vehicle payments (purchase or lease) and have received a notice from your lender concerning the missed payment at any time within the last year, the lender can repossess your vehicle at a moment’s notice. The lender must wait until you have been behind on your payments for at least 10 days before the Notice is sent out. However, if you have been given a previous Notice in the past year, there is no obligation for them to send out another one. You are entitled to ONE NOTICE every 12 months. If you are entitled to a notice, it must provide you with a 20 day period in which to completely catch up on your payments. If not, your vehicle can be taken that next day.

After repossessing a vehicle, the lender can either elect to keep the vehicle or sell it at an auction. If the lender keeps the vehicle, you will owe nothing further. However if the lender chooses to have the vehicle sold (the typical situation), then the lender is permitted to use the sale proceeds to pay your remaining debt and go after the borrower(s) (the persons who signed on the purchase or lease agreement) for any remaining amounts owed. Remember that the “remaining amount owed” will include the costs of repossession, re-titling and sale. Thus, not only will you lose the vehicle, but you will also remain liable for the “deficiency” balance owed. This deficiency may be collected through normal court collection procedures and may result in a judgment and wage garnishment to pay off the remaining balance. As a further insult, should the lender be owed a deficiency amount and not collect from you, the IRS will send you a Form 1099-C asking you to pay income taxes on the amount of the debt that was forgiven! Be sure to consult with your tax advisor concerning this possibility.

If you cannot catch up on your payments, you might try to contact the lender to see if they will work out a repayment arrangement. This may allow you to delay the repossession or possibly sell the vehicle and pay off the full balance of the loan. But if they are not willing to work with you, you may be out of luck. Well, almost…. You have two remaining options:

a) REDEEM (PAY OFF) THE VEHICLE: You have the right to “redeem” the vehicle by paying the full amount owed (including all repo fees, storage costs and other costs) … not just the amount you are behind … to the lender. This must be done before the vehicle is resold by either the lender or the auction company. Yet, with a repossession already showing on your record, most people cannot come up with the money to do this.

b) FILE A BANKRUPTCY: (Chapter 7 or 13):

Filing a Chapter 7 bankruptcy will normally mean that you will lose the car, but it will often delay the repossession for a month or two until an order is obtained from the Bankruptcy Court. After a Bankruptcy is filed, the car cannot be taken from you until this order is received. (Be aware that you have an obligation to keep the car fully insured). In addition, you will have no obligation to pay any deficiency owed to the lender after the sale and you will have no obligation to pay 1099-C income taxes to the IRS for debt forgiveness.

Filing a Chapter 13 bankruptcy will normally allow you to payoff the overdue back payments (arrears) over a period of years and stop the foreclosure sale. You will need to a) once again start making the regularly scheduled loan payments, and b) make an additional payment to the Chapter 13 Trustee once a month to pay off the arrears. The lender cannot prevent you from doing this or repossess the vehicle provided that the car remains insured and that both the regular payments and the Chapter 13 installment payments are made from that point on until the plan is completed. A Chapter 13 bankruptcy must be filed before the date of the repossession or sale. After the sale date takes place, even a bankruptcy filing will not allow you to keep the vehicle. In some cases, if you have paid on the same loan for a number of years or refinanced the loan, you may be able to simply pay the lender (in your Chapter 13 plan payments) the remaining value of the vehicle instead of the amount remaining due on the loan. This is helpful in the many cases where the car is not worth the amount owed on it.

 For a free initial consultation, call Henze & Associates, P.C. at

(303) 830-2811



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