So now we’re at the stage where many of our clients have to deal with their wheels. If you own your car outright, or even better have no car (better for the environment), then read no further. This is only for clients who are still financing their vehicles whether owned or leased. Just read the section below for your situation; owned or leased. We’ve had a discussion pertinent to your case during our appointments on this, but this is a review. You signed a “Statement of Intentions” already about your decision on your vehicle(s), but as the title of the document suggests, it is your intentions, not your commitment, and you can change your mind any time in the next few weeks.
OWNED CARS STILL UNDER A FINANCE CONTRACT
REAFFIRMATION: If you own your car (it isn’t leased), and you want to keep your current financing, then it’s usually best to reaffirm the loan. This means you agree to continue to have personal liability for the loan despite the bankruptcy discharge order that would otherwise automatically wipe out the personal liability on the loan. Even if that were to happen, the vehicle financing company still has a lien on the vehicle via your pink slip and can repossess it if you don’t make payments. Some companies, such as Ford Motor Credit and Chrysler Credit deem it a technical default if you don’t reaffirm, and even if you’re current on the loan (made all payments) and repossess the car if you don’t file a reaffirmation.
So we usually reaffirm the car if it’s not too “underwater” or upside down in terms of the value of the car being too little compared to the loan. It makes no sense to reaffirm a $20,000 loan on a $5,000 car. Other options described below would be better. However, most cars are a little underwater and reaffirmation is just fine in that circumstance.
Reaffirmation lets you get credit on the credit reporting agencies such as Experian, Transunion and Equifax, so that’s a positive in rebuilding credit, and, as stated above it avoids the technical default. The downside is that if you fall behind on payments they can repossess your car, then auction it and hold you personally liable for the difference between the sales price and the loan amount and sale costs.
So if you financing is at a good interest rate, and you’re not seriously underwater, then reaffirmation is what we normally do. That means the lender sends us a “Reaffirmation Agreement” which we review and sign, and then we get your signature, return it to the lender who files it with the Court. It’s important you sign this and return it promptly since there’s so much that has to be done before it’s final and it has to be done while the case is still open.
REDEMPTION: If your car is way underwater, you can force the lender to let you keep the car and only pay the fair market value of the car in cash instead of the full loan amount. Most people use a lender such as 722 Redemption for this option, as they don’t have the cash, but if you have a rich uncle to help that makes it more attractive, because the interest rate is usually steep.
So in the same example, if the car is worth $5,000 and the loan is $20,000, you can give the lender $5,000 and the old loan is discharged for the $15,000 difference just like credit cards are discharged. If the lender doesn’t agree though, the judge will have to get involved in a Motion to Redeem, which is a cost 722 Redemption finances. We help you do the math to figure out if it’s a good deal for you.
SURRENDER: This means giving the car back to the lender. The loan is then discharged as the lender has the collateral back. But unless you’re going to take the bus or Uber everywhere, you will need another car. Some people just buy a cheap beater, like an old Honda Civic with over 100,000 miles that will still be reliable enough.
If you have leased a car you only have two options:
SURRENDER: This means giving the car back to the owner/lessor. The remaining payments and any over mileage charges will also be discharged as the lessor has the property back and you’ll have no further obligations. You may consider this if you can borrow someone else’s car or your employer has given you a company car, as examples.
ASSUME THE LEASE: This means you keep the lease as if you had never filed bankruptcy on it. You sign a document and so do we, and then give it to the leasing company who files it with the Court. You will owe all lease payments, over mileage charges if any, etc. The bankruptcy just doesn’t affect it at all if you agree to this route.
For those who want to get another vehicle financing and finding the replacement vehicle can be done. We use www.replacevehicle.com which is an option just 3 days after you file bankruptcy. The interest rate isn’t as bad as the redemption, and you get a wide variety of cars to choose from. Many clients have been very satisfied with this option, although not every client qualifies for financing.
We’re here to support you whatever vehicle option you choose if your vehicle is financed or leased or even if you don’t have a vehicle but need one.