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Just because you are eligible for a specific debt to be discharged in bankruptcy doesn’t mean you can’t still pay it. Sometimes we have clients that want to carve out certain debts that they don’t want to include in their Chapter 7 or Chapter 13 bankruptcy. The primary use of reaffirmation in North Carolina is to keep an auto loan alive and kicking.
Whether or not you opt for a reaffirmation agreement shouldn’t be a snap decision. You must weigh out the pros and cons of whether you can or should try and keep your car during bankruptcy. First, if the car is a luxury car with a high dollar value and a lot of equity, the Trustee may fight to have the asset seized, sold and excess dollar value applied to your unsecured debts.
Deciding Factor: Equity and Value of the Car
Second, if you have virtually no equity in the vehicle and the payments are high, you may want to rethink whether this is a good use of your cash. The whole point of bankruptcy is to get a fresh financial start. Hanging on to a high interest or high payment loan may not be the best way to get off to a good start. Unloading your current car and taking out a new loan after discharge may be preferable.
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Deciding Factor: Current or Behind on Your Payments?
Third, if you are behind on your car payments, there is a risk that the lender will not want to let you reaffirm your loan. Alternately, they may expect you to get your back payments caught up before they allow you to reaffirm. This may be more than you can afford or more than you should try to afford. You won’t know until you talk to your lender and find out what their inclinations are.
Deciding Factor: Can You Afford to Keep the Car?
Fourth, even if the loan is affirmed, this is no guarantee that the situation will work out the way you want. If the reason you’re filing for bankruptcy is because you are unemployed, got a divorce or suffered a major life event and your finances are still faltering, you may not be able to keep up with the auto loan payments. If this happens, you will lose the car anyway and have a black mark on your credit!
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Finally – we have one more important note of caution. You should not try to keep your financed car without reaffirming the loan. Here’s why. Even if you continue making payments, your lender could repossess your car at any time because of the bankruptcy. It’s unwise to continue giving a lender money without a formal agreement. Just don’t do it!
If you’re dealing with a debt dilemma and aren’t sure what to do about your auto loan, contact a reputable bankruptcy attorney for assistance. Call now for a free consultation with attorney John T Orcutt – North Carolina bankruptcy expert!