Car is no longer a luxury for an American; it has become a necessity for his survival.
Don’t worry about your car, when you file for Chapter 7 bankruptcy. You can use your car during bankruptcy by informing the bankruptcy court about your decision in an official document called Statement of Intention (SOI).
Why is it important to take a quick decision about your car?
When you file for bankruptcy, the “Automatic Stay” helps you in avoiding repossession of your assets. But, the stay is not absolute. Your lender can ask the bankruptcy court to remove the stay and repossess your car. So, it is important that you take care of your car before filing for bankruptcy.
If you want to keep your car during Chapter 7 bankruptcy and don’t want it to repossess, you have two options:
1. You can opt for Redemption and pay a lump sum amount to the lender. The amount will be equal to the current value of your car.
If you have money to cover the current value of your car, you can opt for redemption and purchase the car by disregarding the total loan balance. For example, your total loan amount is $15,000 and the car’s current value is $10,000. In such a situation, you will have to pay $10,000 for buying your car.
2. You can enter into a contract with your lender and continue to make payments to the lender as if you did not file for bankruptcy. It is called Car Loan Reaffirmation.
Now, most people who file for bankruptcy don’t want to part with a large amount of money. So, redemption is a less popular choice. If you want to keep using your car during bankruptcy, you can choose car loan reaffirmation and continue making smaller payments to the lender in comparison to making a lump sum payment.
Why should you opt for Car Loan Reaffirmation?
>> Lenders don’t provide car loan approval to people in bankruptcy. Also, it becomes very difficult for people with a history of recent bankruptcy to obtain a loan. So, it is wise to stick to your current car loan program.
>> Even if you manage to get approval, the interest rates are exceptionally high on post-bankruptcy auto loans. It is extremely risky to obtain a loan with exorbitant rates because it will increase your chances of falling behind on monthly payments. So, it is better to opt for car loan reaffirmation.
>> If you let your car repossess, your lender will have to undertake several procedures to recover money. He will have to sell the car at an auction and accept whatever money he receives. So, it is in his interest that you keep making regular payments. You can take advantage of this situation and obtain lower rates on your loan.
So, now that you know all about car loan reaffirmation, do not worry about your car during bankruptcy.