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Pros and Cons of Reaffirming a Car Loan After BankruptcyWe 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:

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National Association of Consumer Bancruptcy Attorneys State Bar of Texas
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