Bankruptcy

Consequences Of Debtor Not Signing Reaffirmation Agreements For Car Loans and Leases

By Jonathan Alper

Chapter 7 bankruptcy debtors are required to reaffirm car loans in order to keep their car and their car loan through a bankruptcy. The bankruptcy code says that if a debtor does not reaffirm a car loan (or other secured personal property loan) the automatic stay is lifted as to that loan and the creditor can repo the car. In practice, there are varying consequences for a debtor?s inability or unwillingness to sign a car reaffirmation agreement. According to one prominent creditor attorney, if a debtor refuses a reaffirmation Ford Credit will repossess the vehicle even if the loan is current. GMAC will not repossess the car but will reserve its right to do so in the future at its discretion. If a debtor submits a reaffirmation agreement, but the bankruptcy 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.

The reaffirmation of car leases is unclear. The bankruptcy code does not require reaffirmation of car leases, and the Orlando judges typically will not approve a lease reaffirmation agreement. The debtor can assume or reject leases, but the debtor does not "reaffirm" a lease, technically speaking. The major car lenders will insist that bankruptcy debtors sign reaffirmation agreements for car leases, but in this case, if the debtor refuses to reaffirm a lease the lenders usually will not repossess the vehicle if the lease is reasonably close to the end.

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posted by Jonathan Alper, bankruptcy and asset protection attorney, Orlando, Florida.

Full post as published by Florida Bankruptcy Law on March 22, 2009 (boomark / email).