This week, I have been discussing the options available to debtors regarding car loans when filing Chapter 7 bankruptcy. On Monday, I talked about how surrendering a vehicle allows the debtor to walk away owing nothing, and on Wednesday, I discussed how reaffirming a car loan in bankruptcy allows the debtor to keep the car while remaining responsible for the debt as though he or she had never filed bankruptcy. The final option I wanted to discuss this week is the lesser-used process of redemption. Like reaffirmation, a redemption allows the debtor to keep an automobile. However, unlike the monthly payment agreed to as part of reaffirmation, redemption involves paying the lender the current value of the car in a single lump sum. While this option will prevent the debtor from having to continue making payments, redemption can be difficult because the debtor will have to pay the full value…
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Washington DC and Maryland Bankruptcy BLOG
Redemption Provides Financial Freedom—For a Price
May 18th, 2012Reaffirming a Car Loan in Chapter 7
May 16th, 2012On Monday, I discussed what happens when a debtor surrenders an automobile as part of filing Chapter 7 bankruptcy. As I said, the biggest drawback of going that route is that the individual will then have to find a different form of transportation. For a number of my clients, giving up their vehicles would only make life more difficult. Fortunately, one option for such clients is reaffirmation. By reaffirming a car loan, the debtor agrees to be responsible for the debt as though he or she did not file bankruptcy. This option can be preferable to surrendering a vehicle because the debtor will not have to obtain a new loan on a new automobile with new terms. Instead, reaffirmation allows the debtor to secure the interest rate and payment instead of surrendering the vehicle and obtaining a new vehicle at much higher rates, usually financed through a subprime lender. To…
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Surrender Your Car in a Chapter 7 (But Don’t Give Yourself Away)
May 14th, 2012I have frequently written about what can happen to a client’s home when filing Chapter 7 or Chapter 13 bankruptcy, but another type of major asset that is of frequent concern for many clients is the car. While a debtor can often catch up on late payments or even get the amount owed on a vehicle reduced through a Chapter 13, a person filing Chapter 7 has three options regarding his or her automobile: reaffirm, redeem or surrender. Today, I wanted to discuss surrendering your vehicle. This option is often the best decision for debtors who can no longer afford a high monthly payment or whose cars are “underwater,” meaning they owe more than the vehicle is worth. A debtor who surrenders a car, truck or van can benefit immediately by no longer being on the hook for the remaining balance on the loan. This can be especially beneficial for…
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