Bankruptcy and Credit Unions: Part 3 – Your Options in a Chapter 7
By Peter Orville, Attorney at Law on Oct 15, 2007 in Bankruptcy Practice and Procedure, Benefits of Bankruptcy, Chapter 7 Bankruptcy, General Bankruptcy Information
In a Chapter 7 bankruptcy, you have three options with regard to a secured debt. You can reaffirm the debts, redeem the property used as security on those debts, or surrender the secured property and discharge the remaining debt.
If you have a car loan with a credit union and you sign a reaffirmation agreement, you remain legally obligated on the debt. If you later stop paying, the credit union can repossess and sell the car AND hold you liable for any deficiency. If you owed the credit union for any additional unsecured debts, and want to reaffirm on the car, the credit union will usually require you to reaffirm ALL of the unsecured debts in addition to the car loan. (Refer to Part 2 – “cross-collateralization”).
If you choose to redeem the car, you must pay the credit union an amount equal to the value of the car at the time you filed the bankruptcy. If you redeem, you pay only the car’s value, not the additional amount you owe on the car loan and not any other cross collateralized unsecured debts you have with the credit union.
If you choose to surrender the car, the credit union gets the car back and sells it, usually at auction. Any deficiency left on the car loan and all additional cross-collateralized debts owed to the credit union are discharged in the Chapter 7.
See Bankruptcy and Credit Unions: Part 4 – Your Options in a Chapter 13
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