When it comes to your leased or financed vehicle, you have three options when filing for a Chapter 7 bankruptcy. You can surrender, reaffirm, or redeem the property. Careful thought and consideration must given to any of the three alternatives.
Surrender is a straightforward device used by debtors who want to just give back the car and be discharged of all personal liability. Surrendering your vehicle in bankruptcy is not the same as having the collateral repossessed or giving it back to the creditor without filing for bankruptcy. In the case of repossession, you continue to be personally liable on any deficiency remaining when the car is sold at an auction. For example: if you financed a car for $20,000, and a year and forty thousand miles later it sells for $10,000 at an auction, you are on the hook for the deficient balance. That means, that the creditor can take all means necessary to collect on the amount – such as filing a lawsuit against you and garnishing your wages. In bankruptcy, on the other hand, you have the option to give the collateral back and wipe your hands clean. It’s as simple as that.
Even if your obligation to keep making monthly payments can be discharged, you may have particular reason why you want to keep the car. You may need the car to get to work or pick up your children from school. In bankruptcy, you can enter into a reaffirmation agreement with the creditor, in which you contractually promise to pay the debt and waive discharge of the liability that would have otherwise been discharged in your Chapter 7 proceeding. Upon filing bankruptcy, a creditor will mail you or your lawyer (if you are represented) a reaffirmation agreement stating all the terms of the new contract. You must sign and file the agreement with the bankruptcy court within a specified time. Reaffirmation agreements are governed by special rules set forth by the court. The reaffirmation agreement must be in your best interest, and not place an undue burden on you and your dependents. If you sign the agreement and later change you mind, you can cancel the transaction with the court within 60 days after the agreement is filed, or at any time before you are issued a discharge, whichever option affords you the most time. Be aware of the fact that if you reaffirm the debt and later fail to pay it, there are no protections; you are responsible for the debt as though you never filed bankruptcy. Reaffirmation agreements are not recommended unless they are absolutely necessary. Consult with a bankruptcy lawyer before you sign anything.
Redemption is a great tool if you want to keep your car and can afford to pay the creditor the current fair market value of the car in one lump sum. There are many times when individuals enter into a five-year finance contract, and the car value drops significantly after year one. If the redemption is carried out property, you may be able to purchase your car for a significantly lesser amount. Be prepared to submit evidence of the value of the vehicle to the court. The court needs acceptable evidence of the value in order to make a determination on the price you must pay to redeem. Once the court rules on the value, you will typically have 30 days to pay the sum to the creditor.
Mishiyeva Law- Bankruptcy Lawyer NYC 80 Wall Street New York, NY 10005 (646) 736-6328 kmbankruptcylawyerny.com