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Bankruptcy Attorney: Your Car Loan Options During Bankruptcy



By:Mike Cibik

Your Car Loan Options During Bankruptcy

When going through a bankruptcy, you wonder how you are going to survive it. You also wonder how you will have a roof over your head and have a car to get work. Rest assured, you will still have a roof over your head and have a car, that you might have acquired a loan for through a price comparison website similar to Money Expert. In fact, car loans during a bankruptcy aren’t as hard to get as you think. You do have options to get a car. An American Bankruptcy Certified lawyer will help you understand how to get a car with a Chapter 7 bankruptcy or a Chapter 13 bankruptcy.

Subprime Rates for Auto Loans

When you are buying a car, it’s best to do it before petitioning for bankruptcy. If that’s not an option, you can still buy a car during the bankruptcy. Today, there are car dealers out there that will work with debtors. These type of dealers will offer car loans six months after a bankruptcy discharge. However, be prepared for a subprime loan. Subprime means high risk, which equates to high-interest rates. These rates can be as high as 20%. They may also have other requirements, such as a large down payment and a FICO score of at least 580. It’s better to get a new car than a used one due to the maintenance, and the dealer wants to get a new car off the lot since he gets more money for it. After you have had your car for a year or two, you can try to refinance it. Remember, as the years go by, your credit will recover. You can also look at information here on how you might be able to get help with your car insurance.

Reaffirmation Agreements & Bankruptcies

To get a car loan during a bankruptcy, you will need to get permission from your trustee. This means that you will be taking on debt while others are being discharged. You will be asked to sign a reaffirmation agreement. This legal document states that you promise to pay the car loan, even after the bankruptcy is over. If you fail to make the payments, the car will be repossessed, and you will have to pay the difference between the amount you “reaffirm” (value of the car) and the amount the lender/dealer will get for the car at an auction.

With a Chapter 13 bankruptcy, you can use a reaffirmation agreement to get a car. You can also modify the interest rate with this type of bankruptcy. However, there is the “910 Day Rule,” which prevents “lien stripping” where the auto loan was signed 910 days before filing for bankruptcy. This means the auto loan is considered a “secured” debt and must be paid in full as part of the payment plan. This rule was born from the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005.

Why 910 days, you ask? This is the point at which most cars are worth the principal balance of the loan.

Car Loan Options During a Bankruptcy

You do have options for keeping your car (or getting a car) during your bankruptcy.

  1. Surrendering the Car – You can simply turn over the car to the lender. (You should get documentation when you do this.) The lender will sell the car because now it is considered a used car and will get less for the amount you paid for it. The remaining balance, called the “deficiency balance,” will be wiped in your bankruptcy.
  2. Reaffirm your Car Loan – With the reaffirmation agreement, you promise to take on the new debt and make the car payments. Some car dealers will require the reaffirmation agreement.
  3. Keep the Car – You can decide not to include the car in the bankruptcy and continue to make the payments without a reaffirmation agreement. It is important to note that if you do this, the lender may decide to stop sending you statements and you will be responsible for keeping track of the balance.
  4. Redeem the Car Loan with a New Lender – Bankruptcy law permits you to reduce the value of the car to fair market value. For example, if you purchased a car for $25,000 and the car is now worth $20,000, you may be eligible to reduce the car balance by $5,000 with a new post-bankruptcy loan. This is only possible if the car was purchased prior to filing.
  5. Negotiate with the Lender – Some lenders will negotiate and lower the price of the car to fair market value. If you do this, you will not need to redeem the car.

Providing Comprehensive Bankruptcy Services

At Cibik & Cataldo, you can trust us with your bankruptcy case. We will help you understand the bankruptcy process and how you can get good credit again. We will stop the foreclosure of your home and the repossession of your car. We can also guide you on how to get a new car if needed. Contact us or give us a call at 215-735-1060 for a free consultation!


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