Tag Archives: Automobile Loans

What should I do with the car or truck I cannot afford when I want to file for bankruptcy?

Reaffirm that car loan; you might have a good interest rate you do not want to lose. Too many people incorrectly assume that filing for bankruptcy protection means that you have to give up every possession and asset you own. This is not true. Every day there are individuals who file for bankruptcy protection, everywhere from rural farm towns to big cities. Whether your crops completely failed or you were run down by a limo on the way to a business meeting, bad things happen to good people. When your earning capacity is temporarily or permanently impaired, the bill collectors start swarming like vultures. When you finance your car or truck and fall behind on the payments, the big vultures are ready to swoop in and carry it away if you do nothing to protect the interest in your car.

There are exemption amounts in every state that allow you to keep up to a certain valued amount of personal property and assets, including equity in your vehicle, the amount that is paid off. When it comes to that car you finance, it is not your asset until it is paid off and in your name, and meanwhile all you may have is equity in the vehicle if it is well on the way to being paid off, as opposed to you owing more than it is worth. To learn more, read our blog, Bankruptcy Exemptions in Illinois.

There are a few options for financed cars and trucks when you fall behind or consider bankruptcy.

Got buyer’s remorse? That new “keep up with the Jones” model you absolutely had to have, might feel like more of an albatross when it comes to the monthly payment. Maybe your temporary financial condition makes you wish you never got that car in the first place, and if that is the case, you can surrender it to the trustee or finance company and include any deficiencies in the bankruptcy, whether you file for Chapter 7 (full discharge) or Chapter 13 (reorganization).

If you like the car or truck, or maybe have an excellent interest rate or a decent amount of equity and the equity is more than the exemption allowance, reaffirmation is a good idea. A reaffirmation agreement is just what it sounds like, a contractual agreement between finance company and you the borrower that you promise to keep current with the payments on the vehicle and to keep it excluded from the bankruptcy. Your bankruptcy filing will need to list the vehicle and financial details, including the reaffirmation agreement, to keep everything straight with the court and trustee.

If you have a good deal on your car or truck loan, you might want to reaffirm and keep it.

Remember that your ability to get new credit for a car or truck loan could be limited for a short period after a bankruptcy, and if you do not have a decent down payment then your interest rate could be high, until you are able to refinance the loan. For more on credit repair, read our blog, Credit scores, cards and reports: What you might not know.

Joseph Wrobel, Ltd. helps people get control of their finances and a fresh start at financial freedom. The firm’s website contains informative videos about financial issues as well as bankruptcy protection for families who want a fresh start. To keep in touch and read about consumer finance news and stories you can “Like” the firm’s Facebook page and “Follow” Joseph Wrobel. Ltd. on Twitter. If you need immediate legal assistance, please call Joseph Wrobel, Ltd. by calling (312) 781-0996 to talk to an attorney today.