Carrasco Family Law Blog

« Back to Home

What Chapter 7 Bankruptcy Filers Should Know About Reaffirmations

Posted on

If you are considering filing for bankruptcy, you might be concerned about your vehicle loan. It can be more difficult to get a vehicle loan with bankruptcy on your record and you may want to keep your vehicle if you can afford it. Read on to find out what can be done to renew your pledge to pay off your auto loan with chapter 7 bankruptcy.

Autos Are Secured Property

As a debtor, you probably have both secured and unsecured debt. Secured debt is attached to something like a car or a home. Unsecured debt is not attached to anything. Credit cards, medical bills, personal loans, and payday loans are common forms of unsecured debt. When you list the unsecured debt on your bankruptcy forms, you won't be losing any property if the debt is forgiven.

However, secured debts are different. If you owe your lender money on your vehicle, they can repossess the vehicle if you don't make payments. No one wants that to happen. The bankruptcy trustee doesn't want that to happen because they don't benefit from seizing a vehicle with a loan attached. The auto loan company would rather you continue to pay on your loan.

Reaffirmation Agreements

When you file for bankruptcy, you are placing your property and debts in the hands of the bankruptcy court. You no longer have any voice in your financial situation. If you don't agree to a reaffirmation, your vehicle could be repossessed, or it could be seized by the bankruptcy court. However, if you agree to leave your vehicle out of the bankruptcy (so to speak), you can keep your car.

The reaffirmation agreement spells out that you are promising anew to make the payments as agreed to prior to the bankruptcy filing. As long as you continue to pay for your vehicle, it continues to be in your possession. Once it's paid off, you will receive the title just as if you never declared bankruptcy. However, if you fail to make the payments, the vehicle will likely be repossessed by the lender.

What Else to Know

Here are a few more facts about reaffirmations.

  • Let your bankruptcy lawyer know that you want to keep your vehicle and continue making payments as soon as you can.
  • Your lawyer will advise you, most likely, to continue making payments.
  • If you are behind on your auto loan payments, you may not be approved for a reaffirmation.
  • You must show that you will be able to afford to make the payments after your bankruptcy is final.

Speak to your bankruptcy lawyer to learn more about loan reaffirmations.