When you purchase a car and take out a loan to pay for the car, you are giving the lender a collateral mortgage on the car. A car loan is a secured debt in a Chapter 7 bankruptcy.
In order to keep your car in a Chapter 7 bankruptcy, you will have to sign a reaffirmation agreement. If you do not sign the reaffirmation agreement, or if the judge will not approve the reaffirmation agreement the lender has the right to seize the car.
Chapter 7 also lets you turn the car over to the lender in full satisfaction of what is owed to the lender. This means that if the car is sold and the sale price is not adequate to pay off the loan, the lender has to eat the loss.
The reaffirmation agreement must be signed and filed with the bankruptcy court before your case is discharged.
So what happens if you sign a reaffirmation agreement and then realize that you can’t afford the car after all?
The answer is: It depends!
When you sign the reaffirmation agreement, you are agreeing to pay the car loan after your bankruptcy is discharge. In other words, you don’t discharge the car loan.
If you don’t pay the you will in all likelihood have the car seized and you are still liable on the debt.
Fortunately, even if you signed a reaffirmation agreement and then decide you can’t pay the loan, the bankruptcy code gives you some time to change your mind.
If you sign and then change your mind, you have 60 days from the date the reaffirmation is entered with the court, or the date of discharge of your bankruptcy, whichever is later.
A Chapter 7 bankruptcy is an opportunity to get a fresh start. You need to give serious thought as to whether you can afford to keep your car.
Discuss your options with an experienced bankruptcy attorney.
by Kevin Gipson, New Orleans, Louisiana bankruptcy lawyer.