Can a Vehicle Lender Refuse to Reaffirm My Loan?

Can a car lender refuse to reaffirm?  I received this question from a Utah reader of my Atlanta Bankruptcy blog:

We had our car loans lumped together into one loan for both cars. Both vehicles are worth about 14,000 together and we only owe 6,500. If we’re filing a chapter 7 will the bank try to keep the cars if they could make oney off of them? We are not behind on any payments, and in fact have ever missed a payment on our vehicles. We’re in Utah.

My answer:  I think that there are two issues to consider here.  First, you need to be certain that your interest (equity) in these vehicles is “exempt” under applicable law.  I practice in Georgia, not in Utah, but a brief look at Utah Code Annotated Section 78-23-8(3) suggests that you can exempt $2,500 per vehicle, for total of $5,000.  If this is correct, you might have non-exempt equity here ($2,500).   You would therefore have to deal with the Chapter 7 trustee’s estate interest in this $2,500.  Please check with a Utah attorney to check out this exemption issue as there may be an angle to avoid a non-exempt equity problem.

Second, it is possible that the lender could refuse to reaffirm, although I suspect that such a refusal is unlikely.   Most vehicle lenders would prefer to have monthly payments rather than used vehicle that would be sold at auction.  In addition, I suspect that bankruptcy judges and trustees would not look too kindly on a vehicle lender that refuses to cooperate with debtors.

If the lender refused to reaffirm, then you would have the option to file a motion to redeem the property for the $6,500.  See my previous post about redemption of secured collaterals in bankruptcy for more information about redemption.