Before deciding to reaffirm, carefully consider these questions:
- Am I current on my car payments? Most creditors will not allow you to reaffirm a car loan that you are behind in paying.
- Is my equity in the car exempt? If your equity in the car is not protected by an exemption, the trustee will probably sell the car to pay your other debts. So reaffirmation would not help you keep the car.
- Do I actually need this car? You may need a car to drive your kids to school, but do you need THIS car? Could you get the kids to school in a cheaper car? Remember, you'll have to be able to convince a judge that they should allow you to reaffirm your debt. If it is not clear that you actually need this particular property, they probably will not allow you to reaffirm your secured debt.
- Can I afford to make the required payments on this car loan? Part of the judge's job in your bankruptcy is to make sure that you are set up for financial success after your debts are forgiven. If reaffirming your debt after bankruptcy would leave you in a position where it was difficult for you to pay your other bills, a judge will probably not allow you to reaffirm your secured debt.
- If the car was repossessed after bankruptcy, could I afford to pay the lender difference between what I owe and what the car is worth? Because you will be unable to file any type of bankruptcy for at least four years after your debt is discharged, reaffirmations can be risky. If you reaffirm your debt and fail to make on-time payments, the creditor will probably repossess the property and charge you the difference between its value and what you owe. It is important to carefully consider this risks before making the decision to reaffirm your car loan.
Answering "yes" to these questions is not guarantee that reaffirmation is the right decision for you, or that the judge will allow you to reaffirm your property. Reaffirmation is a complicated process that can damage your fresh start if not handled correctly. As a result, surrendering your car and buying a used one often makes sense in many cases.