Debts Secured by Purchased Personal Property

Classic red Ford MustangMost people want to keep their car or truck, even if it is subject to a “car loan”. However, even staying current on the loan may not prevent a repossession if you do not take certain additional required steps. In a Chapter 7 Bankruptcy, for car loans, (or any other loans to purchase personal property where you put up what you were purchasing as collateral for the loan ) you have to offer the lender a “reaffirmation agreement” that effectively makes that particular loan “non-dischargeable”. This means that after the bankruptcy you will be personally responsible on the loan as though you had not filed a bankruptcy. That means that if you fell behind on the loan or otherwise violated its terms, the lender can not only repossess the car or other collateral, but can also sue you personally for any money due.

This is NOT a requirement in Chapter 13, only in Chapter 7.

Once you file a Chapter 7 Bankruptcy, your attorney should write to all the lenders whose loans must be reaffirmed offering to make that agreement.

This is a serious step. The reaffirmation agreement needs to be signed and submitted to the lender within 30 days after the First Meeting of Creditors and must be submitted to the court for approval before you receive your bankruptcy discharge. If you can show that you can afford the loan payments (or have someone who will make them for you), AND if you have an attorney who will sign off on the agreement saying this is true, the court will almost always approve the agreement. A careful and qualified attorney will want to make sure that the loan is in fact properly perfected by demanding a copy of the signed loan agreement and title or other documents and will not sign off on the agreement if it is in fact a hardship. Attorneys who have done so have been subject to court penalties.

If it appears you may not be able to afford the loan, the procedure is different. In this case, the court will schedule a hearing and you will be required to appear in court to explain why the loan should be approved. Even if payment is a hardship, courts do not necessarily disapprove, but will want to make sure you understand the seriousness of what you are doing.

Please note that car title loans, or other loans where the money borrowed was not used to buy the car or collateral are not subject to these requirements. There is also no requirement that mortgage or home equity loans secured real estate be reaffirmed, and courts will generally not approve these.

If you submitted the reaffirmation agreement and the court did not approve it, most courts hold that you cannot lose the car to repossession as long as you are current. If this happens to you, you or your attorney should ask the court to include in the order disapproving the reaffirmation agreement specific language that makes this clear.

This is another area where the need for qualified and experienced legal counsel is critical.

Contact Neuner & Ventura, LLP

We understand the stress, anxiety and confusion that can be associated with a potential bankruptcy filing. We offer a free initial consultation to every client. For an appointment, call Neuner & Ventura at 856-596-2828 or send us an e-mail. We do, however, reserve the right to charge a fee to review any work done by another attorney. Evening and weekend appointments are available upon request.

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