From time to time the financial situation of a person who has filed for a Chapter 13 bankruptcy changes for the worst and they need to convert their Chapter 13 bankruptcy to a Chapter 7 bankruptcy.
When a bankruptcy is converted from a Chapter 13 bankruptcy to a Chapter 7 bankruptcy the issue of whether or not to reaffirm secured debts frequently comes up.
When a secured debt such as a car note is reaffirmed the debtor is agreeing to continue to pay the debt under the original terms and conditions of the loan.
The first question to resolve about reaffirming a car loan when converting from a Chapter 13 bankruptcy to a Chapter 7 bankruptcy is whether the client was current on the car note at the time of the Chapter 13 filing, or whether the client was in arrears on the car note.
If the client was current on the car note at the time of filing the Chapter 13 bankruptcy, then the client would be able to reaffirm the debt and keep the car.
If the client was in arrears on the debt at the time of the of filing the Chapter 13 bankruptcy then the question will be whether the creditor was paid for any of the arrearages during the Chapter 13 bankruptcy Plan and how much they are still owed. At times the client may have made enough payments that they are caught up on the arrearages at the time the Chapter 13 bankruptcy is converted to a Chapter 7. Under such circumstances a reaffirmation of the debt could also occur.
It is also important to remember that the debtor would also still have the right to surrender the car and get rid of the secured debt when the bankruptcy is converted. This may be to the client’s advantage if the car has depreciated in value or become a maintenance issue.
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Last modified: February 24, 2013