How to keep a car in chapter 7 bankruptcy – Reaffirmation agreements

Keeping a car in a chapter 7 bankruptcy can be tricky.  If you still owe money on your car loan, the lender has the right to re-possess your car if you stop making payments on the loan.  Filing bankruptcy prevents the lender from taking any action repossess your car.  However, after the bankruptcy is filed, the lender does have the right to ask the bankruptcy court for special permission to repossess the vehicle.

So how do you keep a car in a chapter 7 bankruptcy?

Reaffirmation agreements are one method of keeping a car when money is still owed on a car loan.  The lender for the car loan has a lien, or security interest, that entitles them to re-possess the car if the loan is not paid.  When a person files chapter 7, they are asking to be discharged from the debt that is owed on the car loan.  However, by signing a reaffirmation agreement, the owner of the car agrees to sign up again for the loan and continue making payments even after bankruptcy.  In exchange, the lender agrees to allow the owner to keep the car.

A reaffirmation agreement is a great tool for helping a person to keep a car.  However, if the car is worth less than the balance of the loan, signing the reaffirmation agreement may not be a good financial decision.  Here’s why –  if the owner defaults on the reaffirmation agreement after the bankruptcy, the lender is still entitled to repossess the car.  The lender then sells the car at an auction.  If the sale price is not enough to pay the balance of the loan, the owner owes the lender.  This is a new debt that cannot be discharged for another eight years, which is how long a debtor must wait to file a second chapter 7 bankruptcy.

Advising my clients regarding reaffirmation agreements is part of my job as a consumer bankruptcy attorney.  If you are wondering how to keep a car, or other property in a chapter 7 bankruptcy,  make an appointment today for a free 30 minute consultation at my office.

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