Occasionally, I receive a call from a client who had a successful discharge of a Chapter 7 bankruptcy. In most cases, the client’s financial situation changed in ways that could have the potential to affect the bankruptcy order.
Recently, I a client whose wife had just lost her job called. The loss of the job resulted in them being unable to meet the demands of the bankruptcy order. Initially, they wanted to keep their car to pay it off. However, once the wife lost her job, it became too difficult to keep up with payments. Instead, they decided to sell it back to the bank. “Is it possible to sell if it’s in serious need of repair?” But the question they were really asking was: can I keep my car after filing bankruptcy?
Can I Keep My Car After Filing Bankruptcy?
The answer to that is a firm and unequivocal YES! It’s possible to pass ownership to the bank. However, you will want to know if this will finalize your debt without the bank suing you. Again, it all depends on whether you agreed to a bankruptcy agreement that contained a reaffirmation order upon discharge.
What about a reaffirmation agreement?
By signing a reaffirmation agreement, it’s almost as if you haven’t been discharged at all. When agreeing to reaffirmation, you give the bank the right to sue you. This can be done in the event that the sale in execution brings in proceeds that are insufficient to pay off your debt. By signing this reaffirmation agreement, you waive the protection from the bankruptcy discharge order. The discharge order protects you from being sued on the auto loan following subsequent default.
Though scary and shrouded in superstition, bankruptcy is actually a good thing. The fact that the law comes to the rescue of those who are genuinely in debt is amazing. Discharge is an opportunity for bankruptcy clients to rearrange their finances without the constant threat of civil proceedings. Therefore, if a reaffirmation agreement was never signed, any failure on your part to meet payment obligations should not lead to a lawsuit. It is forbidden for lenders to collect from debtors who have a bankruptcy discharge and are in default even if it is to their advantage.
Even though reaffirmation agreements are based purely on contract and are sacred, they are unfair and contrary to the legal convictions of society. It is unreasonable to expect a desperate debtor to relinquish assets soon after discharge has been ordered. It not only circumvents the whole purpose of filing for voluntary bankruptcy, but it somehow makes the whole bankruptcy process futile.
The sad reality though is that the ball is actually in the lender’s court. Owing to the promulgation of changes to the BAPCPA in 2005 and the passing of landmark decisions, the bankruptcy code has changed significantly. In the the case between Antoinette Dumont and Ford Motors, the latter repossessed the car despite the fact that Antoinette had never been party to a reaffirmation agreement. The court held in favor of Ford Motors. So cases of this nature are not new. On the other hand, you do get that occasional auto lender who is reasonable and allows you to keep your car for as long as you remain committed to the repayment plan as ordered upon discharge.
A Better Way
There is of course a better way to handle repossession and that is by reconsidering the reaffirmation agreement. Signing one can work to your advantage if the car is almost paid off and there is a substantial amount of equity in it. Say there’s one year remaining on the auto loan. On top of that you have about 11 000 of equity on the car. A creditor will look at that and consider you risk free in terms of default. So, even if he does try to enforce contractual reaffirmation, he can still get all his money back after a sale in execution. But, you ought to tread carefully because there are some lenders who -when realizing that there’s a lot of equity on the car- may push for repossession for personal gain. So, I often advise my clients that despite the odds, sometimes the reaffirmation route is safe.
How you handle a bankruptcy reaffirmation agreement today will have repercussions. This is why you need to have a bankruptcy attorney by your side when filing for bankruptcy.
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