In a Chapter 7 bankruptcy filing, a debtor must decide whether or not he can afford to keep his primary vehicle if there is a loan secured by the vehicle. Because a car qualifies as personal property, if the debtor wants to be sure to retain a vehicle, they need to reaffirm the loan or redeem the loan for the value of the vehicle. Of course, if the debtor owns the car outright with no loan remaining, this does not apply.
If a debtor decides to redeem the loan, they must file a motion to determine the value and then pay that amount to the lender in full satisfaction of the debt. The lender would have an opportunity to offer their opinion as to the value of the vehicle. If there is a dispute as to the value, the judge makes the decision as to the amount that needs to be paid.
A more common choice for debtors is to reaffirm the loan. That means that the debtor agrees to remain on the hook for the full loan amount (or an amount negotiated with the lender and reflected in the reaffirmation agreement). A reaffirmation means that the discharge that the debtor receives at the end of the bankruptcy case will not affect the vehicle loan that was reaffirmed. Thus, if the debtor misses payments on the loan after the bankruptcy, and the lender repossesses the vehicle, the lender can still seek a judgment for any amount on the loan that is not paid through the sale of the vehicle.
If a debtor does not reaffirm or redeem the vehicle loan, the lender can repossess the vehicle (even if the loan is current) once the automatic stay is lifted. The automatic stay can be removed by motion or by operation of law, and definitely ends upon the closing of the case.
If the debtor wants to discharge the vehicle loan, but still try to keep the vehicle for some time after the bankruptcy by keeping the payments current, they will have to get the lender to agree to that arrangement, or gamble that the lender will not want to repossess the vehicle as long as the loan is current.
When filing Chapter 7 bankruptcy, it is best to consult with an attorney prior to filing to make sure you are aware of your rights concerning personal property loans.
For more information or a consultation, please call 661-210-5657, or e-mail mjf4bk@ca.rr.com.