06 Apr Should I Reaffirm My Car In Southern California?
In most cases, No. In most cases, the value of the car is significantly lower than the debt against it. Sort of like our housing market……and look at the mess thats causing in real estate since values are now less than the loans securing it! So if you don’t want to go bust like all the big subprime lenders, pay attention to the following!
By reaffirming the car contract, you are now legally liable for this debt. If you later change your mind and decide to voluntarily turn the car in, the creditor can now come after you for the deficiency. Reaffirmation puts you back on the hook. I refuse to sign them in most cases.
Moreover, unless your lender is Ford or Chrysler, your lender will most likely not require you to execute a reaffirmation agreement. Instead, so long as you maintain the payments and insurance, you are free to drive the vehicle. Why? Because the lender knows that they are making more money by you paying than what they will get by repossession and at action. Additionally, if you later change your mind, at any time in the future, you can surrender the vehicle with absolutely no exposure to liability.
Most my clients simply stop paying on their vehicle as soon as we file their bankruptcy case. This is because they are almost always upside down with negative equity, and because they had a high interest rate to begin with. So I tell the client to let the creditor “eat steel”. If the creditor does not want to negotiate their contract to the fair market value and accept a more reasonable interest rate(and this is typically every case), why should the debtor be punished? After all, as soon as discharge is entered, a debtor can pretty much buy any car out there!
For instance: Suppose you have a 03 Ford Explorer valued at $9000 mid blue book, but where $15,000 is owed against it at 16% interest. With the downturn in the economy and its effects now hitting the automobile industry, that same vehicle can now be purchased at auction for $7,000.00. Don’t have the money? No problem. Lenders are stepping up to the plate to finance these vehicles, and not at the usual 20% to 25% interest like we saw in the past, but more like 8% to 12% interest. So why pay an extra $8,000 at 8% higher interest? Its not rocket science to see why surrendering the car in this case is the best option.
Nowadays, I simply tell my clients to speak with someone that offers this type of financing and auto searching abilities. Moreover, these replacement vehicles can be completed very fast and with zero ($0.00) money down! All you typically need is your discharge. And since you stopped paying 4 months prior to discharge and have been driving the vehicle for free, you can typically put down a nice down payment, even though not required, to lower your monthly payments even further.So be sure and speak with your attorney about your automobile options in light of today’s economy. There are simply too many deals out there which all point to letting your steel go back unless the lender is willing to work with you!
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