If you come across the phrase “reaffirm the auto loan,” you are probably filing for Chapter 7 bankruptcy or you are already in the process of filing for bankruptcy. A reaffirmation agreement allows you to keep your financed vehicle during Chapter 7 bankruptcy – if you meet certain requirements.
Reaffirming Your Auto Loan In Bankruptcy
A Chapter 7 bankruptcy reaffirmation agreement is when you sign an agreement with your car lender stating that you can continue to make payments normally so that you can keep your car. However, you must prove to the court that keeping this vehicle is necessary and show that you can afford it.
Once you reaffirm a car loan, the car loan is not included in your bankruptcy at all. Your auto loan continues normally and you cannot pay off your bankruptcy balance. This means that if you end up defaulting on the loan, the lender can repossess the car, auction it off, and you are responsible for any remaining auction balances and repo fees.
You are fully responsible for the debt after you sign the agreement, unless you cancel it within 60 days of signing it, according to the legal website Nolo.com. You may also be able to cancel the reaffirmation agreement before your bankruptcy is discharged. To be eligible for a reaffirmation agreement, you must be up to date on your auto loan. The vehicle must also meet your state’s exemption amounts. If your car is worth more than the exemption amount, you probably won’t be able to keep it. In this case, your trustee is likely to sell it to pay off your debts.
Can I change the terms of my loan during reaffirmation?
Often times, your auto lender will require you to keep the same loan terms you agreed to when you reaffirm your auto loan. However, you may be able to negotiate some.
When you are in Chapter 7 bankruptcy, you have some leverage over your auto lender when negotiating a reaffirmation agreement. Your lender knows that you can just voluntarily give up your car to get rid of all liability for the loan. Lenders usually lose money on repossessions like these. Therefore, it may be better for everyone to reaffirm the auto loan and change a few terms to make it easier for you to pay the payments.
The terms you can negotiate can include a lower interest rate, the payment due date, or the length of the loan. While a change in the payment date may just help you stay up to date on your loan, a lower interest rate and longer loan term may be options for lowering your monthly payment.
The worst a lender can say is no. If they aren’t working with you at all and you’re worried about making the payments as they currently are, it may be a good idea to return the vehicle. Once you are released from Chapter 7 bankruptcy, you can usually take out another car loan fairly quickly with a subprime lender.
Auto loans in bankruptcy
Once your Chapter 7 bankruptcy is discharged, you are free to find another vehicle. However, many traditional lenders are reluctant to help bankrupt borrowers on their credit reports. You probably have a better chance of getting a car loan from a subprime lender.
Subprime lenders are third party lenders who are registered with special finance dealers. They often help borrowers who have gone bankrupt and those with tarnished credit records. These lenders know that your credit reports tell only part of your story, so they look at many other aspects of your ability to get new credit. This usually includes reviewing your income, life situation, work history, and the down payment requirement.
Special finance dealers can be hard to find, but we’ve got an easier way to locate the loan resources you need after bankruptcy. Here has Auto Express Credit, we maintain a nationwide network of dealers capable of assisting bad credit borrowers. To be matched with a dealership in your area, complete our free auto loan application form. We’ll get to work to find you the resource you need for the auto loan in bankruptcy, and there is never an obligation.