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Dear Bankruptcy Adviser,
My wife and I filed for Chapter 13 bankruptcy that was converted to Chapter 7, which was discharged in
February 2008. We tried to reaffirm both of our autos, and the bankruptcy judge would not allow it.
We had been continuing to make payments, and my wife's car is now paid in full. However
my auto is not, and I noticed on my credit report the account is listed as closed. I am still making
payments on the car and still have possession of the car.
Since I am not getting any credit for making my timely payments, and I have been approved
for a new auto loan, what should I do with my current vehicle? What should I do with the old vehicle -- turn
it back in or try to trade it in when making the new car purchase?
-- Troy
Dear Troy,
Sometimes judges act like a caring parent -- deciding
what is best for a child and not giving any say
in the matter. This can be a wonderful thing because
it keeps you from having to make the decision:
Should I keep the car or not?
Reaffirmation of a vehicle loan, or any debt for that matter, means that you agree to accept
legal responsibility for the remaining loan balance after your bankruptcy case is closed. Most lenders require
the agreement in order for you to keep your car. Also, this is usually the only way to receive monthly statements
again and to have future payments reported on your credit report. These agreements can help you re-establish
credit more quickly with a positive post-bankruptcy payment history.
As of now, the car balance has been
eliminated in the bankruptcy. You may be able
to continue paying the creditor directly and keep
the vehicle. Each lender handles reaffirmations
differently. From my experience, most of the major
vehicle finance companies believe that after filing
bankruptcy you must reaffirm, redeem or surrender
your vehicle. These lenders are not allowing borrowers
to keep the vehicle and continue making payments.
Since the bankruptcy law change
in October 2005, the Japanese and German automakers
were more willing to work with people after bankruptcy.
The American automakers would repossess the car
without having a signed and judicially approved
reaffirmation agreement. And the remaining automakers
were handling this issue on a case-by-case basis.
Now, it appears all lenders require a reaffirmation
agreement, judicially approved, for you to keep
your vehicle.
Somewhat interestingly (to other
attorneys only), attorneys also have different
interpretations of the reaffirmation provision
in the bankruptcy code. Some believe that when
you make an attempt to reaffirm, but the court
rejects your motion, then you ought to be able
to keep the vehicle and continue making payments.
However, while this might be good in theory, the
problem is that you will be required to fight
with the car lender in court to enforce this interpretation.
The result will be more attorney fees and no certainty
as to your ability to keep the car.
Most attorneys are telling their clients to surrender the vehicle, thus eliminating the remaining
balance along with the other debts. Some tell the client to see whether the lender will work with them. You ought
to contact the lender directly, now that the judge has rejected your reaffirmation agreement. You might be able
to work out a deal with the lender or you might just have to drive it to the dealer and turn in the keys.
I have yet to have a client tell
me that he or she could not obtain another car
after filing bankruptcy. It might not be the ideal
car, but your priority is to get to work. If your
business "requires" that you drive a fancy car
to impress clients, you might have a more difficult
time finding the right vehicle. However, most
people are simply too emotionally attached to
a vehicle and believe it is their right to have
the car that they desire. This type of thinking
generates more clients for bankruptcy attorneys
than almost any other consumer behavior.
Regardless, try to proactively deal with the issue rather than waking up one day and having
your car be dragged behind a tow truck on the day you have the most important meeting of your career.
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