Reaffirming Car Loans in Bankruptcy

This question is asked by many who frequent our office during this troubling times. The demographic had changed, and we see lots of white-collar folks who some time tell us in barely audible voice their miserable stories. Of course, we listen with compassion. Most often it is related with their cars. Cars we know is a necessity and a tool of trade. Once cannot live without it. A car is such a part of our livelihood that we cannot imagine our lives without it. Under the exemptions to bankruptcy, the debtor can keep a personal car if his equity is less than $15000 in Nevada.

However, if you file for Chapter 7, the lender may require you to reaffirm your car loan even if you are current on your car payments. (Also, it would come with some more added on your car loan reaffirmation like the reaffirmation fee filed by the lender). These reaffirmation agreement are very long and you need to sign it if you want to keep car. Of course, if you don’t, you just can surrender in the statements of “Intention” and get rid of the deficiency judgment. This is one time where you can get rid of that bad and emotional decision you made where they crafty sales people had charged you 18 percent interest rate and you become a victim to their high-pitched sales tactics of “bait and switch”. These reaffirmation agreement has to be approved by the bankruptcy judge and he can deny it based on your personal income.

One side benefit of filing for bankruptcy is that (if you are surrendering the vehicle under “Intention” as “surrender”), your lender can postpone the repo process for another two months as bankruptcy places everything under a halt by the mandatory provisions of Bankruptcy Code and you can drive free until the repo man becomes really serious and repo your car. Again, the repossession has to be finalized with the help of your attorney. Let us understand in bit technical way. Your car notes has two different parts — the promissory note that makes you personally liable for the debt and the security agreement that allows the lender to repossess the car if you default on the payments. These are recorded in any DMV offices which essentially places a lien on the vehicle. When you file Chapter 7 bankruptcy you can get rid of the promissory note (the amount you owe pursuant to the promissory note is discharged in the bankruptcy) — and your personal liability — but you can’t get rid of the lien. This means you will have to continue making your payments if you want to keep the car, even though you don’t actually owe anything on it.

What Reaffirmation Means?
It means simply that borrowers would continue making monthly payments on the reaffirmed rate of interest and balance. Some lenders may also cut interest rate but some of the major lenders refuse to budge and insist on keeping the same interest rate. You can always try to threaten them. It may work sometimes as they don’t want an old, tired looking and almost junk vehicle. They had already too many lying in their yard. It is up to the judge to approve the reaffirmation agreement, and if you are current or nearly current, chances are that they would approve this reaffirmation agreement.


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