When filing a Chapter 7 bankruptcy case in Western North Carolina, clients have a right to “reaffirm” their car loan debt. By doing so, they can keep their car while maintaining the same payments as if they had never filed a case.
I frequently advise clients to consider not signing a reaffirmation agreement.
Particularly when there is “negative equity,” meaning the balance on the car loan is more than the car is worth, several other options can be more appealing than a reaffirmation agreement.
Most frequently, I advise folks to continue making their payments AND refuse to sign the reaffirmation agreement. Unless you have a loan with a Credit Union or Ford Motor Credit, the car loan company will generally allow you to keep making payments and keep using the car. When the car dies, and there is a balance left on the loan, you don’t have to roll that principal into your next car loan. Instead, you can turn the car in back to the lender without paying a penny more because the liability on the debt was discharged in your bankruptcy case. This saves clients thousands of dollars on their next car purchase long after their bankruptcy case is over.
Another strategy is to replace a car with an expensive payment. The client can utilize their current vehicle for an average of 60-80 days after the bankruptcy filing because of the bankruptcy protection delivered by the Court’s automatic stay. This allows the client to make arrangements for obtaining another vehicle, or working out an arrangement on the current vehicle at better terms.
Redeeming a car, a type of bankruptcy-approved refinancing, is another option which can save client’s money.
People don’t file bankruptcy cases because they think they will lose their car. The reality is your options with your car in bankruptcy are frequently much better than your current deal. If you would like to speak to me about your options, contact me for a free, initial bankruptcy consultation.
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