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Should a Debtor Reaffirm a Vehicle When Filing a Chapter 7 Bankruptcy?

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Should a Debtor Reaffirm a Vehicle When Filing a Chapter 7 Bankruptcy?
A Chapter 7 bankruptcy makes a debtor no longer liable under their contracts.  That is why a debtor can surrender a house or vehicle through the bankruptcy with no penalty.  The deficiency will be discharged through the bankruptcy, and the debtor will no longer be responsible for that debt.  The deficiency is the difference between what a debtor owes on a secured debt, such as a vehicle, and what the secured debt is sold for by the creditor after surrendering the property.
Reaffirmation essentially puts a debtor back into a contract with the car creditor.  Some creditors do not require a debtor to sign a reaffirmation agreement and will allow the debtor to continue to pay on the vehicle without such an agreement.  However, many car creditors do require debtors to sign a reaffirmation agreement if they intend to keep the car.  In that case, if debtors do not agree to sign the reaffirmation agreement, they can repossess the vehicle.  In that case, a debtor would need to decide whether they want to surrender the car or reaffirm the vehicle and continue to pay for it.
Once a reaffirmation agreement has been signed, the debtor will once again be liable under the contract.  If the debtor does not make payments on the vehicle, the creditor can repossess the vehicle, and the debtor will be responsible for the deficiency on the car, and it will not be discharged through the bankruptcy. 
When considering whether it is advantageous to reaffirm a vehicle, there are a few pros and cons a debtor can consider.  One benefit of signing a reaffirmation agreement is that some creditors will report those on-time payments to the credit bureaus;  however, not all creditors will do this.  Another benefit is that some car creditors will send statements to the debtor if a debtor reaffirms.  Otherwise, they may not do this.  A benefit of not signing a reaffirmation agreement is that if a debtor does not sign the reaffirmation, the debtor can walk away from the vehicle with no penalty if they cannot afford the payments and will not be responsible for the deficiency. 
A debtor may not want to reaffirm when they owe much more on the vehicle than what it is worth or if the debtor questions whether they will be able to maintain the payment on the vehicle.  A debtor may want to reaffirm if there is a low loan balance and if the payments are manageable and can be easily maintained.  If you have any questions, please contact a St. Louis or St. Charles bankruptcy attorney.

Category: General

2 Comments to "Should a Debtor Reaffirm a Vehicle When Filing a Chapter 7 Bankruptcy?"

I assume the bank is a Credit Union. Are you in the St. Louis or Missouri area? At least here in St. Louis we see it often that Credit Unions offset discharged debtr with the money the client has in his account. That's not very practical if the Credit Union doesn't know yet how much is actually owed after a repossession. They might keep the account frozen for some time. The fact that something is listed on the credit report as "written off" doesn't really mean anything, it is still owed, and a collection agency will come after the debt at some point, that's at least my experience. I would discuss the issue with your bankruptcy attorney.
Posted by Tobias Licker on November 11, 2013 at 11:35 AM
I had my vehicle loan through my bank. I went through Chapter 7 bankruptcy and did not reaffirm the loan, but they wrote it off on my credit report as surrendered through bankruptcy. I have been paying on the vehicle each month since then. I had to surrender the vehicle this month due to money issues. While it is protected through my Chapter 7, the bank has essentially locked me out of my checking account and wont let me access any of the money in my account. Can they lock me out of my checking and savings accounts even though I am protected through my bankruptcy for the vehicle?
Posted by Will on November 11, 2013 at 11:15 AM

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