Reaffirm Auto Loans after Bankruptcy: A How to Guide
If you have auto loans, a bankruptcy filing will cause you to have to make a decision about your existing obligations to a car loan lender. Both Chapter 7 and Chapter 13 bankruptcies(chapert 11 is for businesses) will allow you to do one of the following:
- Redeem the Vehicle
- Surrender the Vehicle
- Reaffirm the Car Loan
There is also another informal option termed "Retain and Pay" that allows you to simply do nothing with the regard to the loan, but continue making payments. However, this may not be a viable option for all borrowers and leaves the vehicle open for repossession. Also, some judges or trustees may not allow this option.
When you redeem the vehicle, you are allowed to pay the lender the fair market value for the vehicle. If you owe more than the vehicle is worth, this can be a good deal—but you have to make a lump sum payment for the market value of the vehicle and the remaining balance is discharged. Likewise, you can choose to surrender the vehicle to lender and have then entire debt discharged—but then you won't have the car.
On the other hand, if you want to keep the vehicle, you can reaffirm the car loan and agree to continue making payments. Before you reaffirm the loan, you should seek the advice of an attorney. However, if you want to reaffirm the loan, follow the steps below.
What You Will Need
- A car loan to reaffirm
- Advice of an attorney or permission from bankruptcy judge or trustee
- A reaffirmation agreement
Step 1 - Contact Your Attorney about Reaffirmation
Contact your attorney and let him/her know that you are considering a reaffirmation of your car loan. Alternatively, if you do not have an attorney, you should contact the car loan lender and instruct them of your intent to reaffirm the car loan.
Step 2 - Make a Decision Regarding the Reaffirmation
Consult with your attorney and determine if the reaffirmation is best for you. There may be times when you don't need to do a reaffirmation because the lender doesn't want to take possession of the vehicle anyway. Other times, car loan lenders may require that you reaffirm the loan in order to keep the vehicle. Make a decision to proceed or not what the reaffirmation of the car loan.
Step 3 - Receive and Review New Contract with Attorney
Once you have decided to reaffirm the car loan, you should have received a new contract or agreement from the lender. Ensure that the terms of the new agreement or contract are acceptable and discuss with your attorney if applicable.
Step 4 - Sign the Agreement
After you're satisfied with the terms and conditions contained in the reaffirmation agreement, sign the agreement and either have your attorney forward it to the bankruptcy court or forward it to the trustee yourself.
Step 5 - Receive Permission from the Court
After the court has received your reaffirmation agreement, the Judge or trustee will review the agreement. The judge or trustee may deny the agreement if he/she feels you will not be able to afford or make timely monthly payments. This is done to protect you because a vehicle that is reaffirmed is not discharged in bankruptcy.
Step 6 - Reaffirm the Loan
If the judge or trustee signs off on the agreement, you will be allowed to keep the vehicle and continue making payments to the car loan lender. If the lender has agreed to more favorable payments or terms, you will now make payments in accordance with the new terms. Or if no changes have been made, continue making payments as you had in the past.