Your Car and Chapter 7 Bankruptcy

If you own your vehicle outright, the State of California allows you to exempt from $3,300 to $2,550, depending on which exemption code you use, of the value of your vehicle. If your vehicle is worth more than the statutory automobile exemption, there are other State exemptions that allow you to retain your vehicle; your attorney will be able to help you with this.

If you are making payments on your vehicle, you have three choices. First, you may surrender the vehicle. If you choose to surrender the vehicle you will be forgiven of any deficiency on the loan, the amount of the loan less the amount the vehicle was sold at auction. Second, you may redeem your car by paying the lender in full. The Third choice is you reaffirm the loan, basically enter into a new contract with your lender and keep the same terms of the original agreement. If you choose to reaffirm your loan you may negotiate with the lender for a better interest rate or reduced payoff, if the payoff is more than the value of your vehicle. You have a bargaining chip in the negotiations because the lender knows that you have the right to surrender the vehicle and they can either choose to have used inventory or a regular monthly payment.

It is important to realize that if you choose to reaffirm your automobile loan and later are unable to make the payments, the lender will have the right to reposses the vehicle, sell it at auction and begin the collection of the deficiency amount from you. The lender may obtain a court judgment. The judgment allows the creditor to attach a lien to your home, levy your bank account or garnish your wages until the deficiency is paid off.

All reaffirmation agreements must be entered in your Bankruptcy Case before your case is closed and because of the serious consequences of default, these agreements must be reviewed and approved by either your attorney or the Judge appointed to your case, to insure the creditor is acting in good faith and it appears you can afford to reaffirm the loan.