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In Chapter 7 Should I Reaffirm a Car Loan?


When a Chapter 7 Bankruptcy is filed, you must list all creditors including secured debts such as car loans.  Under the current rules, when you file the bankruptcy you must indicate your intent relating to the vehicle.  The options include keeping the car and applying to reaffirm the debt, redeeming the car by paying the secured creditor the value of the vehicle even if it is less than the amount owed, or surrendering the vehicle.  When a debt is reaffirmed, it is an affect taking it out of the bankruptcy.  This is helpful on credit.  However, the downside is if you subsequently default on the car loan payments, the car can be repossessed, sold at auction and you can be sued for any balance.  Under the current rules, if you do not apply to reaffirm the debt, the creditor can repossess the vehicle even if you are current.  Some creditors may choose not to do so in that circumstance.  If making the car payment is a struggle, consideration should be given to not reaffirm the debt.  In addition, if your bankruptcy schedules reflect that your income is less than your expenses, the court can deny your application for reaffirmation.  However, since you have complied by applying for a reaffirmation, even if denied the general consensus is as long as you make payments you may keep the vehicle.

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