How to Keep Your Car in Bankruptcy

There are basically two choices if you want to keep your car in a bankruptcy:  Reaffirmation  and  Redemption .  Your don’t have to have a lawyer represent you,  but you should make an informed decision.  At California Online Bankruptcy Lawyer , we advise you as to what is the best option in your case.

Reaffirmation.  A reaffirmation agreement   is a written contract entered into between the debtor, you, and the creditor, for example a car company, to continue paying the auto loan after the bankruptcy, usually for the purpose of keeping collateral (i.e. the car). If you are paying on a car and want to keep it, you will have to sign an agreement and go to court to convince the judge that to keep paying would not be a hardship.  An attorney can represent you for an addition fee, in which case you do not have to appear in court.

Note:  If you sign a reaffirmation agreement and it is approved by the court, and later you get into trouble and can’t pay, the creditor can take back the collateral and sue you for any loss.

Redemption.  Under this option you can buy the car back from the lender . To redeem the property, the you must pay the creditor the current retail value of the property based on its age and condition. If the vehicle is worth less than what the you owe to the bank, the balance becomes an unsecured debt subject to discharge in bankruptcy. Once the you pay the creditor, the you receive title to the property. Payment is usually in one lump sum. This option is not only available for  cars , but is also an option for other types of property, such as household items.  

  There is a third choice, which is to do nothing and just keep making the payments (its called a “pass through”).   However some companies won’t let you do this and will try to take back the car.  Under this option, which is not allowed for in the bankruptcy code,  some lenders are choosing to look the other way, happy to collect the payments without a reaffirmed loan contract.  If the car has a low value relative to the cost of taking it back, you can decline to redeem, reaffirm or surrender and wait to see if the creditor will take action to recover the car after the bankruptcy.  In my experience, creditors  threaten but do not pursue  this kind of collateral after the bankruptcy.

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