Car Loan Reaffirmation – Keeping Your Car After Bankruptcy

Car key on the table

On your bankruptcy paper, you should declare whether you want to keep your car or give it away when applying for Chapter 7 bankruptcy and you have a car loan. Naturally, you will have to pay for it if you want to keep it. One way to do this is to create another contract with your lenders in a process called reaffirmation of the auto loan.

Protect Your Car in Chapter 7 Bankruptcy

You don't give up all you own during bankruptcy. You can keep the property you will have to maintain, such as clothing, household furniture, and a modest car. Chapter 7 bankruptcy will involve selling any non-exempt properties on behalf of your creditors.

The first thing to do to find out if you can retain a car is to determine if all your car equity can be protected. Every state has several exemptions from bankruptcy designed to help you protect your property. In some states, you can choose the exemption scheme from either what the state government offers or what the federal exemption does. You will have gotten over the first hurdle if you are able to keep the equity in your car. However, there is more to do if you make payments on the car.

Here’s the Problem

You pay for a truck or car. To get to work and keep living life, you need this vehicle. Without it, you can't do anything. However, the loan payments are hard to keep up. You owe many other debts, so it's a huge challenge to maintain current status on the car loan. Every month, it's a huge stressor. Even if you have found some other transportation somehow and gave up your current vehicle— or the lender or whoever repossessed it — you can easily still owe a "deficit balance" of thousands of dollars.

The amount ought to be much greater than you would be ready to expect. That's because when vehicles are repossessed, they are usually auctioned off, which means that your account will receive less credit than you expected. Moreover, the costs of repossession and sale would just add to the balance. There seems to be no point in giving up the vehicle. You need the car, but you can't afford to pay for it. Moreover, even if you could do without it somehow, you could probably still owe thousands of dollars to let it go.

Chapter 7 bankruptcy

Chapter 7 Bankruptcy Won’t Help Much

Two things about your car loan are accomplished by Chapter 7 through your bankruptcy attorney in Edmond, OK. First, chapter 7 will probably remove a lot of other debts that could help you keep your vehicle. You could then perhaps afford to pay for it. Alternatively, Chapter 7 would likely release the balance if you surrender the vehicle.

In Chapter 7 you cannot alter any of the terms on your car loan. It is a "take or leave" situation. If you’d rather keep the car, the monthly payment, interest rate, and other costs are included. Furthermore, you must "reaffirm" your debt almost always. The vehicle loan is, therefore, legally excluded from debt release. As a condition of keeping the vehicle, you still owe on it completely.

Reaffirmation Agreement

During a car loan reaffirmation, you and the creditor will form an agreement that you will keep paying for the car as though nothing changed. To reaffirm a car loan, the court must be convinced that the car is needed, and a reasonable payment is required. You must also prove that the payment for cars is not an undue hardship for your household.

A men writing on an agreement paper

Effect of an agreement

If you reaffirm the debt, you agree to be responsible for the debt. You are bound by your discharge if, after 60 days of signature, you do not cancel it. If you continue to make payments, you may keep your car. However, the creditor may repossess and sell it at the auction if you default and you will be responsible for any remainder of your balance owing according to the loan agreement as well as for any auction fees. It is a deficiency balance.

Cancelation of an agreement

You can withdraw (cancel) the agreement once you’ve signed the reaffirmation agreement to keep the car. You must cancel within 60 days of signing the agreement or prior to the discharge, whichever comes later. If you cancel on time, you can return the car without spending another dime on it.

Come to Chris Mudd and Associates for your bankruptcy attorney in Edmond, OK for help if you want to keep your car after filing Chapter 7.

** Disclaimer: This blog post does not constitute legal advice, nor does it create a client-attorney relationship.