Bankruptcy can be quite a disruption in your life. It can force you to make tough decisions that you never expected to make. For the majority of folks who live in the suburbs or beyond the reach of public transportation, their vehicle might be the only way to get to work and to obtain food and other basic necessities.  

When you file for bankruptcy, one of the decisions you will have to make if you are still financing a car is whether or not to keep the vehicle. This comes as a surprise to many people when they inquire about bankruptcy. It is important to understand that you have a choice in the matter; you do not have to give up your car. Filing bankruptcy should cause you as little disruption in your life as possible.
 
Some clients elect to keep their cars and continue to make payments to the loan companies. Others find that their vehicles and the payments that they are making are too burdensome. In these situations, the clients often decide to return the car. 

When you have a car that you are still making payments on, you have a few choices when you file a Chapter 7 bankruptcy:

  • Reaffirm the debt
  • Surrender your vehicle to the creditor (owe $0)
  • Redeem the car for the retail value
  • Continue to pay the car note as usual

What is Reaffirmation?


Number one above provides you with the ability to keep your car and continue to pay on the car note. A reaffirmation is an agreement between you and the company that is financing your vehicle. Typically, the only way that a finance company will agree to sign a reaffirmation with you is if you are not behind on your payments and you maintain the proper insurance coverage on your vehicle.
 
Signing a reaffirmation agreement means that you agree to continue to pay your car payments even though you are filing bankruptcy. If you end up defaulting on your payments, the finance company has the right to repossess your vehicle, sell it, and then sue you for the outstanding balance that has not been recovered. 
 
What Happens If You Surrender the Car?

If you decide to surrender the car, you will not be held responsible for the balance of the loan. The remainder of the loan is discharged. Some automobile dealers might be willing to sell another car to you that provides you with terms that are more suitable for your current financial situation. 

 

Redemption


Another possible option is to “redeem” your vehicle for the retail value. Most people filing bankruptcy generally cannot afford to redeem their car, however. This means that if the amount that you owe on your loan is much higher than the value of your car, you can essentially purchase your car for the retail value. In past situations, clients were able to find companies that were willing to finance their redemptions. Interest rates might be high in these cases, but it might turn out to be a better deal with shorter terms. 

 

Continue to Pay Car Note


You are probably wondering why you would reaffirm your loan when you can simply keep your car and continue to make payments. If your final decision is to maintain possession of your car, you should understand that this particular option is not recommended. Even if you remain current on your car payments, the finance company can repossess your car after you file Chapter 7 bankruptcy. 

When you reaffirm the debt you owe for your car, your Chapter 7 bankruptcy lawyer must certify that the agreement will not create an undue hardship for you. We can only legally certify a reaffirmation if the Income and Budget that is filed in your bankruptcy demonstrates that you have sufficient income to pay the loan payments after the discharge. Reaffirmation is the best way to ensure that you can keep your car as long as you continue to make your payments in a timely manner. 

 

If you are interested in replacing your car with another car or would like to finance a redemption, you will need to do these things on your own. They are not part of a bankruptcy proceeding, therefore, we have no authority over these dealings. 

Can I Change My Mind After A Reaffirmation Agreement?


You can reject, cancel, or “rescind” a reaffirmation agreement after a judge has signed off on approval, but you must do so within a specified amount of time. There is a 60-day time limit to change your mind about a reaffirmation after it is filed with the court, or you can rescind an affirmation agreement as long as it is within 60 days of the court issuing a discharge on your bankruptcy case, whichever comes later. We recommend that you discuss rescinding a reaffirmation and any possible consequences with us before taking any action. 

 

Bankruptcy can be rough emotionally. No one ever expects to have to file bankruptcy, but then the day comes when you are making the decision to move forward with Chapter 7. You, like many others before you, probably feel like your life is spinning out of control, but bankruptcy is actually the ideal option for folks who are constantly fielding creditors’ harassment, threats, and demands. This is a great opportunity to start over and wipe away those debts that have been haunting you for too long.  

Are You Considering Filing For Bankruptcy? If you feel bankruptcy is the best option for your financial situation you need to speak with an experienced bankruptcy lawyer as soon as possible. Please contact us online or call our office directly at 888.348.2616 to schedule your free consultation.

Are You Considering Filing For Bankruptcy?

If you feel bankruptcy is the best option for your financial situation you need to speak with an experienced bankruptcy lawyer as soon as possible. Please contact us online or call our office directly at 888.348.2616 to schedule your free consultation.

James Roswold
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James Roswold is a Kansas & Missouri personal injury, workers comp, and medical malpractice attorney.