If you are in the process of purchasing a vehicle and are considering filing bankruptcy there is always one big question that needs answering… Will you still owe on secured debts (mortgages, car loans) after bankruptcy?
Yes and No. The term “secured debt” applies when you give the lender a mortgage, deed of trust or lien on property as collateral for a loan. The most common types of secured debts are home mortgages and car loans. The treatment of secured debts after bankruptcy can be confusing.
Bankruptcy cancels your personal legal obligation to pay a debt, even secured debt. This means secured creditors can’t sue you after a bankruptcy to collect the money you owe.
But, and this a big “but,” the creditor can still take back their collateral if you don’t pay the debt. For example, if you are behind on a car loan or home mortgage, the creditor can ask the bankruptcy court for permission to repossess your car or foreclose on the home. Or the creditor can just wait until your bankruptcy is over and then do so. Although a secured creditor can’t sue you if you don’t pay, that creditor can take back their collateral.
For this reason, if you want to keep property that is collateral for a secured debt, you will need to catch up on the payments and continue to make them during and after bankruptcy, keep any required insurance, and you may have to reaffirm the loan.
But, what is reaffirmation?
Although you filed bankruptcy to cancel your debts, you have the option to sign a written agreement to “reaffirm” a debt. If you choose to reaffirm, you agree to be legally obligated to pay the debt despite bankruptcy. If you reaffirm, the debt is not canceled by bankruptcy. If you fall behind on a reaffirmed debt, you can get collection calls, be sued, and possibly have your pay attached or other property taken.
Reaffirming a debt is a serious matter. You should never agree to a reaffirmation without a very good reason.
Do I Have To Reaffirm Any Debts?
No. Reaffirmation is always optional. It is not required by bankruptcy law or any other law. If a creditor tries to pressure you to reaffirm, remember you can always say no.
Can I Change My Mind After I Reaffirm a Debt?
Yes. You can cancel any reaffirmation agreement for 60 days after it is filed with the court. You can also cancel at any time before your discharge order. To cancel a reaffirmation agreement, you must notify the creditor in writing. You do not have to give a reason. Once you have canceled, the creditor must return any payments you made on the agreement.
Also, remember that a reaffirmation agreement has to be in writing, has to be signed by you or approved by the judge, and has to be made before your bankruptcy is over. Any other reaffirmation agreement is not valid.
Do I have to reaffirm on the same terms?
No. A reaffirmation is a new contract between you and the lender. Here’s where we can help…keep reading.
Should you reaffirm?
If you are thinking about reaffirming, the first question should always be whether you can afford the monthly payments. Reaffirming any debt means that you are agreeing to make the payments every month, and to face the consequences if you don’t.
Consider this Scenario:
You recently filed either a Chapter 7 or 13 bankruptcy and you must either reaffirm or redeem the debt or surrender the vehicle;
You currently have a balance due or payoff of $15,000 on a car worth only $8,500;
Let’s assume you have 4 years remaining on your loan with an interest rate of 12%; and,
Based on the above, your payments are $395.01 per month for 4 years, for a total of $18,960.48.
You owe far more on your car than it’s really worth. You want to keep your car, even after you have filed for bankruptcy. You need it. Your family depends on it.
Normally, lenders let you keep your car and payments and interest rate stay as is. But, in some instances, like being late with monthly payments after the bankruptcy is over or failure to provide insurance coverage, they may demand and impose full payment on your current loan.
Be forced to pay the entire $8,500 fair market value in cash, in a lump sum also known in bankruptcy as redeeming the debt.
Surrender your vehicle to the bank.
Better yet…we have the Solution
You do have a better choice. In Arizona, Federal bankruptcy law allows you to keep (reaffirm or redeem) your vehicle by paying Fair Market Value to your creditor – not the amount you actually owe.
Fair Market Value is defined…”A bankruptcy plan may allow the debtor to retain and use a secured creditor’s collateral over the creditor’s objection if the creditor receives present value at least equal to its secured claim. 11 U.S.C. Section 1129(b) (2) (A) and 1325 (a) (5) (B).
Until now, few people in bankruptcy could take advantage of this option because the lender usually required you to make a lump sum payment of that fair market value and if you are in bankruptcy you wouldn’t have that amount of cash available.
Our redemption program allows you to take advantage of a better choice.
In our example scenario, a car worth $8,500 could be either renegotiated or refinanced – usually with no out of pocket costs – at a payment of…
Only $297.00 per month*;
For the same 4 year remaining term; and,
Saving you $4,704.48.
*Above example assumes contract interest rate of 24%
Lower your monthly car payments;
Reestablishing your credit; and,
Gain instant equity on your car in most cases
How Can You Get Started? The Process >>
A quick, 5 minute, no obligation call is all it takes to find out how much money we can save you!