What Happens to a Car I Owe Money on if I File a Chapter 7 Bankruptcy? (Part 2)

06 Sep What Happens to a Car I Owe Money on if I File a Chapter 7 Bankruptcy? (Part 2)

In Part 1, we looked at redemption as a way to keep your car in a Chapter 7 bankruptcy. In this part, we will look at reaffirmation agreements.

A reaffirmation is an agreement to keep making the payments under the contract. The catch with those arrangements, however, is that if you fail to make a payment, the vehicle can be repossessed and you will be held responsible for any deficiency owed. We see this a lot the car is repossessed and sold at auction for far less than is owed, and the owner gets stuck with the bill.

Under the new law, as noted, you must reaffirm, redeem or surrender; the so-called ride through, where you simply kept making the payments, is no longer available. Now, even if you keep making the payments, and you don’t reaffirm, the code allows the creditor to repossess the property.

A curious exception occurs, however, when the debtor signs a reaffirmation agreement, but the court, which is charged with reviewing them, refuses to approve it. Now, the debtor is in complete compliance with the new law, but there is no enforceable agreement. So, at least in some parts of the county, the debtor can keep making payments, and not lose the property anyway.

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Douglas Jacobs is a California bankruptcy attorney and partner in the Chico law firm of Jacobs, Anderson, Potter & Chaplin. Since 1988, Mr. Jacobs has taught Constitutional law and Debtor-Creditor/Bankruptcy law at the Cal Northern School of Law. He has served as Dean of Students since 1994. He is a frequent lecturer on the subject of consumer bankruptcy law, and has spoken at both state and national levels.
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