For most bankruptcy filers, keeping a car is one of the most important concerns when considering chapter 7. Let’s look at the options you have to keep your car. First, it is highly recommended that you are current on the payments or able to get yourself current at the time your case is filed. Assuming you are current, you must remain current for as long as you have the loan. Once you file bankruptcy, lenders will see you as a credit risk, so any late payments after filing bankruptcy may cause a repossession. There are three ways to keep your car in any chapter 7 bankruptcy.
A reaffirmation is an agreement you make with your lender to keep your car, keep making the payments, and keep those payments current for the remainder of the loan. Reaffirmation requires court approval and a hearing in front of the judge. In many cases, the judge will only approve a reaffirmation if the agreement is in your best interest. The lender will typically keep the agreement with the same rate and term for payments that was originally agreed when you bought the car. In some cases, we can negotiate a better deal for you. A reaffirmation means that your car loan is removed from your bankruptcy, so if you end up with a repossession, you remain on the hook for the car loan and will have to pay the lender any remaining balance after the car is sold.
RETAIN AND PAY
In Arizona, the retain and pay option was officially written out of bankruptcy law. However, the practice still goes on. Retain and pay means you simply continue making your payments. For most lenders, they would rather you keep the car then have to repossess it. As long as payments are made, you keep the car. The advantages are there’s no additional court hearing and no need for approval. The disadvantages are the lender will not report your payments to the credit bureaus. The best advantage for retain and pay is, if you are unable to keep up with your payments, and your car gets repossessed, your chapter 7 bankruptcy discharge protects you from owing anything more to the lender.
Redemption is a new car loan at the current market value of your car. The redemption loan must be approved by the court and your current lender must not object to the amount you are agreeing to pay. For example, your car’s current value is $20,000 and you owe $30,000. You would get approved for a redemption loan for the $20,000 value. The loan would be approved by the court and your current lender agrees to accept $20,000 in lieu of repossession. Once approved, you take the new loan and make the payments on the agreed terms. Your $30,000 old lender would then be discharged through your chapter 7 bankruptcy, and you would save $10,000. This program only works for car loans that are underwater. If you have equity or not much negative equity, then the redemption most likely will not save you any money. You can also expect a rather unfavorable interest rate on a redemption loan. If you think redemption might benefit you, visit www.722redemption.com for more information.
If you are unable to keep up with your payments and want to avoid repossession, we can discuss chapter 13 bankruptcy. A chapter 13 repayment plan will help you catch up on the payments so you can keep your car. For more information about chapter 7 or chapter 13 bankruptcy, please give us a call at 623-777-4760 or visit us at www.gaudiosilaw.com to schedule a free consultation. We can help you weigh out your options and decide which bankruptcy is best for you.