Filing for Chapter 7 Bankruptcy and Keeping Your Vehicle - Westgate Law

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Filing for Chapter 7 Bankruptcy and Keeping Your Vehicle

If you have recently filed for Chapter 7 bankruptcy, you may be wondering what’s going to happen to your car. It’s the most common concern after real estate ownership. If you’d like to keep your vehicle, you simply have to know the details regarding your car’s worth and how that applies to the rules of filing for a Chapter 7 bankruptcy.

If you have equity in your vehicle, you are in the minority of bankruptcy filers. Most bankruptcy filers have an “underwater” vehicle loan; they owe more on the vehicle than it’s worth.

For bankruptcy filers who owe a balance that is substantially less than what the vehicle is worth, it’s wise to be cautious in negotiations. The lender is more likely to WANT to repossess the car and resell to pay off the low balance. Make sure to stay in frequent contact with the lender to ensure that you are aware of what they require in order to avoid a repossession of the vehicle.

You may need to sign a reaffirmation agreement. It’s a legally enforceable contract that is filed with the bankruptcy court. It will state that you promise to repay all or a portion of the specified debt (in this case as applies to your car loan balance) that would otherwise be subject to discharge in your bankruptcy. If you execute this type of agreement, you are providing the lender with the opportunity to sue you for nonpayment once your bankruptcy case is closed.

Use extreme caution. You have more to lose than the bank in this situation. They will be more than happy to take the vehicle and resell it at a profit since you owe less than its worth. On the other hand, for you to keep the vehicle, you’re expecting them to put in extra work on their end. Make sure to stay in near-constant communication with the lender once your case is filed so you can accurately determine whether or not you must sign the reaffirmation agreement.

This is not a game of chicken. Don’t try to face off with your lender and expect to win. Be up front. Be straightforward. Tell them what you want and discuss the options available. They’ll be much more likely to work with you if you are working with them.

If you need additional information on reaffirmation agreements and how they will affect your bankruptcy case or life after bankruptcy, contact Westgate Law. We’re your southern California bankruptcy experts.

About the Author

Justin Harelik

Justin has a singular goal: to get people out of financial distress and move them to financial stability and prosperity. He does this by combining 15 years of in-depth experience in bankruptcy, credit management, debt negotiation and student loan modifications, and he does it with both English and Spanish-speaking clients.

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