Reaffirming Your Car Loan in Chapter 7
There are ways to keep your vehicle in a chapter 7 bankruptcy, and the one we will discuss is reaffirmation. Reaffirming your car loan in chapter 7 is the option that most people choose, but it may not be financially responsible, and if that is the case, then we are here to help.
By reaffirming your loan you are signing a legally enforceable agreement to continue paying the same monthly payments and interest rate you are currently paying on, until the end of your loan term.
What Are the Benefits of Reaffirmation?
It can be hard finding an attorney that thinks reaffirming your auto loan is a good choice. Most applicants are upside-down on an auto loan and are paying way too much per month, and so shedding that debt makes sense. However, there are some benefits to reaffirmation.
- Your future payments will be reported to the credit bureaus. That means your credit report will show timely monthly payments, and therefore, will help re-establish your credit after the bankruptcy is discharged.
- If you happened to start falling behind on your payments, the lender will send you a notice.
- The lender will send you a monthly billing statement.
When Does Reaffirmation Make Sense?
Reaffirming your loan does not always make financial sense. Sometimes you have to detach yourself emotionally from the car, and realize that you just cannot afford the monthly payment. Reaffirming your loan makes sense when you have:
- Low monthly payments
- Low remaining balance
- Co-signer on a loan
- No other transportation
If you have high monthly payments or a large balance, your attorney will likely advise against you reaffirming your loan because you will potentially create a financial hardship for yourself or family. At that point it would make more sense for you to buy a car after bankruptcy. You will have a higher interest rate, but if you buy an older, used car, your monthly payments will be lower, and easier for you to afford.
Reaffirming your loan if you have a co-signer makes sense because adding it to your bankruptcy could potentially hurt their credit, and make it difficult for them to get a loan in the future. Having no other transportation is a good reason also because you have to get back and forth from work.
What Are the Negatives to Reaffirmation?
The biggest negative to reaffirmation is that if you default on your loan, you are liable. This means that if you reaffirm the loan and six months down the road you lose your job, and can no longer afford your payments the lender can repossess the vehicle. The lender will then sell the car at an auction for the value amount and you must pay the deficiency. Deficiency is the difference between what you owe on the car, and how much the lender sells it for.
What About Surrendering My Car?
If you decide to surrender your automobile, you will not be paying any money to the lender. You are essentially wiping your hands of the car loan completely. In this case you will need to purchase another vehicle, which is where Bankruptcy Auto Financing can help.
Get pre-approved for an auto loan today by filling out our online survey. You will be contacted with your approval information and we will work to get you set up with a high risk lender that specializes in auto loans in an open bankruptcy.
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