Can I keep my car in a Chapter 7 bankruptcy? Reaffirming a debt

Categories: FAQs

What happens if you have to file bankruptcy but you owe money on a car and need to keep the car and continue to make payments?
 
In a Chapter 7 bankruptcy, at first glance, car loans are included in the debts eliminated. But many Chapter 7 filers wants to keep their case and car payments.
 
This is achieved through the filing of a reaffirmation agreement with the vehicle’s creditor. A reaffirmation agreement is a voluntary agreement that a secured creditor enters into with the Chapter 7 filer which, if approved by the bankruptcy court, will allow the debtor to keep and pay for the car even after the bankruptcy. It establishes a new, legally binding loan after the bankruptcy, subject to all the same rights and remedies the creditor had before the bankruptcy filing.
 
There are a number of things to consider when think about a reaffirmation agreement.
 
1. It is voluntary – In some cases, the creditor may not want you as a client after bankruptcy and may not agree to a reaffirmation agreement
2. The judge gets the final say – you agreement may not be approved for a number of reasons, the most direct is if your judge does not believe the agreement is in your best interest.
3. You should think carefully about your particular car – there may be other ways to get vehicles after the case is complete that are better quality than you current vehicle on better terms.
4. If you think you will not be able to make the car payments, you should strongly consider not agreeing to a reaffirmation agreement.