We recently discussed whether you should continue to lease a vehicle when you are filing for bankruptcy. You are more likely to have to decide whether you will reaffirm your car loan. In a Chapter 7 bankruptcy case, you can surrender (give back your car) and discharge remaining debts at the end of your case. With a reaffirmation agreement, you keep the vehicle in exchange for continuing to make loan payments. However, you should carefully consider the consequences before you enter such an agreement.
Why You May Want to Reaffirm
Texas bankruptcy law has a generous motor vehicle exemption that can prevent a Chapter 7 bankruptcy trustee from selling your vehicle. You are allowed to exempt the full value of one vehicle per member of your household with a driver’s license. You can also exempt a vehicle if an unlicensed member of your household relies on someone else using a vehicle to transport him or her. However, if you do reaffirm, a bankruptcy exemption does not prevent a lender from repossessing your vehicle after bankruptcy if you are behind on your loan payments. A lender may offer you a chance to reaffirm the loan because it would prefer you to continue paying back the loan. A reaffirmation agreement can be advantageous to you because:
- You will keep the vehicle;
- You may be able to negotiate more favorable terms for the loan; and
- Paying the loan can help rebuild your credit rating after bankruptcy.
Why You May Not Want to Reaffirm
You filed for bankruptcy in order to relieve yourself from debts. By reaffirming your loan, you are renewing your debt obligation and leaving yourself vulnerable if you cannot keep up with your payments:
- If the lender repossesses your vehicle after a reaffirmation agreement, you are liable for a deficiency if what you owe on the loan is more than the money the lender is able to recover by selling the vehicle; but
- If the lender repossesses your vehicle without the reaffirmation agreement, you cannot be liable for the deficiency because your debt was discharged.
If you owe more on your vehicle than what it is worth, then you probably should not reaffirm the loan and give back the car. You can buy another car, even when you have filed for bankruptcy.
Contact a Denton County Bankruptcy Lawyer
When considering whether to reaffirm your car loan, you must weigh how much you need the vehicle against how much it would cost to continue your loan payments. A Frisco, Texas, bankruptcy attorney at The Page Law Firm can advise you on whether reaffirmation after bankruptcy would be a good choice in your situation. To schedule a free consultation, call 214-618-2101.