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Keeping a Car in a Chapter 7 Bankruptcy

Posted by Peter Behrmann, Esq. On September 6th

Keeping a Car in a Chapter 7 Bankruptcy

One of the most common questions I am asked is “When I file Chapter 7 Bankruptcy will I be able to keep my car?”  99% of the time the answer is yes.  If the car is owned free and clear then I should be able to protect the car with your Bankruptcy Exemptions.  If you owe money on the car then you will have to sign a reaffirmation agreement.  A reaffirmation agreement is an agreement with the car lender where you will reaffirm your financial commitment to the vehicle lender.

When you file for bankruptcy protection, your car lender can no longer send you invoices, and will not contact you regarding your vehicle. You will have to make sure you have the address and account number handy so you can continue making payments on your car until you are able to sign a reaffirmation agreement.  You will simply mail your vehicle lender your normal payment amount by check or money order to their payment address.  You will want to make sure you include your account number on all payments mailed to receive proper payment credit.  For us to get you a reaffirmation agreement, it usually takes about two months so plan on making two or three payments this way.

The reason you have to sign a reaffirmation agreement is because the Bankruptcy Act of 2005 has eliminated the so-called “pay and drive” option. If you intend to retain possession of the vehicle after discharge, it will be necessary for you to reaffirm your obligation with your car lender pursuant to the Bankruptcy Code.

Further, Section 521(a)(6) of the Bankruptcy Code provides that you shall not retain possession of personal property as to which a creditor has an allowed purchase money secured claim, unless you, no later than sixty (60) days after the first meeting of creditors, either reaffirms or redeems the property. The Bankruptcy Code further provides, if you fail to reaffirm or redeem within sixty (60) days after the first meeting of creditors, the Stay is automatically terminated and the vehicle lender can repossess your car. 

Some vehicle lenders such as Ford Motor Credit Company LLC will strictly enforce these Bankruptcy Code provisions if you do not sign a reaffirmation agreement.  Ford will repossess your vehicle even if payments are kept current if you do not sign a Reaffirmation Agreement.

Lastly, some Detroit area law firms charge extra to help you file a reaffirmation agreement.  At Phoenix Law our fees include representing you throughout the reaffirmation process. We will work with you and your vehicle lender to receive a reaffirmation agreement and walk you through the reaffirmation process at no additional charge. 

Peter Behrmann is a Livonia Bankruptcy Attorney.  From my Livonia, Michigan location, I represent clients throughout Metro Detroit and beyond, including Garden City, Wayne, Westland, Redford, Dearborn, Taylor, Ann Arbor, Belleville, Northville, Novi, Farmington, Farmington Hills, Plymouth, Canton, and the Counties of Wayne, Oakland, Livingston, and Washtenaw. My practice is limited to helping consumers like you file Chapter 7 and Chapter 13 Bankruptcy, and Foreclosure Prevention.

Photo Credit: Wstera2’s 

1 Response

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