Many people who file for bankruptcy have vehicle loans and are concerned about what will happen with their vehicle. They often ask, “Can I keep my vehicle?” The answer in many cases is, “Yes,” provided the equity in the vehicle is covered by the available exemptions. Beyond the exemption issue, there may also be an issue with the lender requiring a reaffirmation agreement.
A few lenders (e.g., credit unions, Ford Motor Credit) will require that you sign a “Reaffirmation Agreement” in order to keep your vehicle when you file for chapter 7 bankruptcy. Many lenders, however, do not require that you sign a reaffirmation agreement to keep your vehicle in a chapter 7 bankruptcy.
In a chapter 7 bankruptcy, your personal liability on a vehicle loan will be discharged, unless you sign a reaffirmation agreement. [Note: A discharge of your personal liability on a vehicle loan DOES NOT mean you can stop making payments on that loan if you intend to keep the vehicle. If you intend to keep the vehicle but stop making payments on the loan the lender will repossess the vehicle, so you’ll have to keep making the payments if you want to keep the vehicle.]
A reaffirmation agreement is basically just a way to pull a debt out of the chapter 7 bankruptcy discharge so your personal liability on the loan will still be intact after the bankruptcy is over.
There are pros and cons to reaffirming a vehicle loan in bankruptcy and you should seek the advice of an experienced bankruptcy attorney to help explain the details.
By Errin Stowell, W M Law Attorney
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