Why do I have to reaffirm my car loan?

14 Feb Why do I have to reaffirm my car loan?

Your car is one of your most important possessions. You want to keep it when you file a bankruptcy case. Most people have some sort of a car loan. Automobile finance companies are very interested in your bankruptcy case. Most times in bankruptcy, they want to repossess your car right away. Maybe you’ve been behind in your payments. Maybe you don’t have insurance. But if you want to keep your car, you have to reaffirm. And you have to reaffirm right away.

Statement of Intention

You have to state your intention as to whether you want to surrender your car, reaffirm the debt or redeem the vehicle. Simply “riding through” – doing nothing, getting discharged and continuing to pay the car after bankruptcy generally is not available as an option. You have to act on your statement of intention promptly – within 45 days.

The reaffirmation agreement

To sign a reaffirmation agreement, you are contracting to pay the car loan after bankruptcy just as you owed it before. You won’t get a discharge from this debt. If you don’t pay the debt in the future, you’re still liable personally for it. You have to be up to date with payments to reaffirm. Otherwise, you’ll lose the car and still be liable on the debt. You need to be able to afford the loan. Maybe you can, maybe you can’t. Your lawyer must also attest to your ability to pay. Some lawyers just won’t do this. Some lawyers are successful in negotiating a better deal for you as a condition to entering into a reaffirmation agreement. You may have to pay an extra fee for this. Discuss it with your attorney

The reaffirmation hearing

If your lawyer doesn’t sign off on a reaffirmation agreement, you will be called to court on a Reaffirmation Hearing. Don’t be afraid of this. The judge will ask you if you can afford to pay for the car. You’ll explain whether you need the car, whether it’s the best deal you can get and how you can afford it. If all is in order, you can reaffirm before your discharge.

When to file a reaffirmation agreement

A reaffirmation agreement must be signed before discharge. So don’t dilly dally on this point. And if you don’t sign a reaffirmation agreement, the car lender will get an order saying the automatic stay and then try to repossess your car. Laws vary from state to state but in Illinois, your bankruptcy is ground for repossession absent reaffirmation.

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Jay S. Fleischman is a bankruptcy lawyer with offices in Los Angeles and New York. He can often be found on Google+ and Twitter, where he shares information about consumer protection issues and personal finance.

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