I Just FIled Bankruptcy in Fort Lauderdale. What Happens If I Don’t Reaffirm My Car Loan?

On behalf of Bankruptcy Law Firm of Clare Casas on Tuesday, November 23, 2010.

In order to keep your car in a Chapter 7 bankruptcy, you are required by the bankruptcy code to “reaffirm” the debt with the lender. The bankruptcy code says that if a car loan or other secured personal property loan) is not reaffirmed, then the automatic stay is lifted on that loan and the creditor can take the property back.

If a debtor submits a reaffirmation agreement, but the bankruptcy court denies the reaffirmation because the judge believes its not in the debtor’s interest, most lenders will not repossess the vehicle if the loan is current. If you simply refuse to sign one, then the creditor has the right to pick up their collateral.

When it comes to car leases, the bankruptcy code does not require reaffirmation in order to keep your lease. Under the bankrupcty code, a debtor can assume or reject a lease, but you do not have to “reaffirm” a lease as one has to do with car loans. In practice, one of the major car lenders will usually send a reaffirmation agreement for leases but you do not have to sign them in order to keep the car. If you refuse to sign a reaffirmation on a lease, the lender cannot repossess your car. You can be asked to sign a letter of assumption for a lease which states that you are assuming the lease again.