Cars

Northeastern Ohio Bankruptcy Attorneys

Keeping a Car Through Bankruptcy

A car title secured by a lien can survive bankruptcy just like a mortgage on real property, meaning the personal obligation can be discharged. But in this case, not the creditor's lien on the vehicle. If suitable arrangements are not made, the creditor may be entitled to repossess their collateral post-bankruptcy when you are behind on payments.

The bankruptcy lawyers at Debra Booher & Associates, Co, LPA have handled over 15,000 bankruptcies for our Ohio clients. Rather than juggle finances, a debtor has several options under the Bankruptcy Code we can help with regarding keeping a car through bankruptcy, or other personal property with secured creditors:

• Reaffirmation: this is an agreement between debtor and creditor that allows the reaffirmed debt to survive as if bankruptcy never took place. If you later default, the creditor's rights after bankruptcy are the same as before bankruptcy, i.e., you can be sued, garnished, etc. to collect the debt. Hence, you should think carefully about reaffirming a debt and discuss your options with your attorney to fully understand the consequences. Most debts are reaffirmed according to the original terms of the agreement, although it is possible to negotiate modifications in some circumstances. Contact us to learn more.
• Redemption: this means you pay the secured creditor only the value of the asset, rather than the balance owed, but this must be done in a lump sum payment. Redemption is not available for all types of property but is often used with respect to cars or other personal property. The problem with redemption is that a debtor must get a lump sum of cash to redeem the asset. While some people can borrow from family or from exempt assets, not everyone has that option. There is now at least one company that will loan money to redeem cars providing you qualify, and most people do. You should consult with our attorney about whether redemption is a good idea in your situation.
• Surrender: if you surrender the collateral, the creditor sells the asset and applies it to the debt you owe. The balance remaining after the asset is sold, called the deficiency, is now an unsecured debt and is discharged with your other debts.
• Do nothing by simply continuing payments: BUT BE CAREFUL! This option for keeping a care through bankruptcy is not written anywhere in the Code. Courts are split on whether a creditor can repossess collateral post-bankruptcy if the payments are current, but no reaffirmation agreement was signed. In Ohio, it is generally held that a creditor CAN repossess a car if no reaffirmation was signed even if the payments are current. But in reality, most creditors realize this is foolish to do. For example, consider a car with a loan balance of $10,000 and a value of only $6,000. Because of the negative equity, it is usually unwise to reaffirm such a debt because if you default, you will be left with a large balance. Yet, suppose you want to keep the car and cannot afford redemption. If you maintain your car payments and insurance, the creditor would be foolish to repossess, because at auction they would be lucky to get $4,000 - $5,000 toward the loan. Whereas if they don't repossess, you are very likely to continue all your payments. But you can only use this option if you could live with the car being repossessed after discharge.

Other types of property, such as household goods, are never pursued by the creditor simply because it is not cost effective. For example, suppose you do nothing with respect to a loan secured by a computer. The computer may only have a resale value of $200 at best. It is not likely worth the creditor's time or money to repossess even though they are entitled to do so. Creditors must be very careful not to run afoul of the bankruptcy laws even in collecting their collateral so it may not be worth the risk to them.

Contact an Experienced Cuyahoga County Chapter 7 Attorney

Debra Booher & Associates is one of the leading consumer bankruptcy law firms in northeastern Ohio. Bankruptcy lawyers at our firm have filed more than 15,000 bankruptcy cases for clients throughout northeastern Ohio, including Akron, Canton, Cleveland and Kent / Ravenna. Contact our Ohio bankruptcy attorneys today to discuss keeping a car through bankruptcy.