Does Reaffirming Car Loan Debt in Bankruptcy Make Sense?

If you are facing the prospect of filing for bankruptcy and you have a car which is still under lien, you may want to reaffirm your car loan debt. Doing this can help you keep your car, maintain a reasonable interest rate and make your life easier while you are trying to recover from the financial situation you are facing.

Your car is probably worth less than you owe on it due to depreciation. Reaffirming debt for lien holders going through bankruptcy may be preferable to your lender because they may take a loss if they do not allow you to reaffirm your debt.

Evaluate Finances

Because you will be agreeing to pay the car loan by reaffirming the debt, you will want to make sure your finances after bankruptcy will include enough money to pay the payments. If you have never operated with a budget before, this is a good time to start.

You will likely have no credit or little credit after filing for bankruptcy, so you will need to make sure you earn enough money and have enough put away to handle monthly payments and basic needs. Evaluating your finances prior to deciding to reaffirm a car loan is an important step to make sure you have a more successful financial future. If you do not have enough money to pay your car payment, public transportation, cycling or walking may be more desirable to you than continuing to suffer the stress of an unbalanced budget.

Positive Side of Reaffirming Debt

• You get to keep your car. Most people need their car to continue working (at least to make getting to and from work easier). If you are contemplating what life would be like without your car, you may want to attempt to go without it for a day or a week. People often don't realize how dependent they are on their vehicle.
• Keeping your vehicle will save you from paying higher interest rates and possibly needing to find a co-signer. Once you file bankruptcy, it will be harder to get credit.
• Reaffirming can help you rebuild your credit after bankruptcy. Most people don't know how difficult it will be to secure credit of any kind after bankruptcy. You will need every opportunity you can find to help get you back to a good credit score. Things such as renting a home, obtaining employment and signing up for services, including phone, cable and electricity can all be more difficult due to bad credit.

Negative Side of Reaffirming Debt

• You will be responsible for paying the loan in full, and you will not be able to declare the debt in bankruptcy if you cannot afford to pay it off.
• You have the right to be relieved of the debt during bankruptcy, so not taking advantage of the opportunity leaves you with debt you could avoid.
• You can be sued and lose property including your vehicle if you fail to pay your reaffirmed loan.

You will need to decide whether reaffirming your car loan is worth it based on your financial situation. If you do decide to reaffirm your debt, it is in your best interest to have an attorney act on your behalf to make sure you properly handle this transaction.

Getting Legal Help

An experienced bankruptcy attorney can help you deal with the process of bankruptcy, including filing papers, appearing in court and talking with creditors. Contact a bankruptcy attorney to learn more about reaffirming your car loan debt while filing for bankruptcy. Your attorney will explain your rights, inform you of your options and advise you of the best course of action considering your income, assets and debts.