You Don’t Need to Walk Away from Your Car if You Are Behind in Payments

Did you know that a debtor in chapter 7 bankruptcy has three options regarding auto debt. They are:

  1. Reaffirmation of the debt.
  2. Redemption.
  3. Surrender of the vehicle.

If you do not want to surrender, or turn your vehicle into the lender to resolve your debt, you have two options:Car Payment Reaffirmation

  • Reaffirmation: Where you reaffirm the terms of your auto debt to avoid the surrender of the vehicle. Reaffirmation of auto debt is done about half the time and it isn’t often in the best interest of the borrower to reaffirm.
  • A second option is a Section 722 Redemption where a debtor pays fair market value for the vehicle and a deficiency balance is waived. If you have money, this is the best option, more often in the early stages of an auto loan, you vehicle value depreciates faster than the loan amortizes. Therefore, at the time of many bankruptcy filings, outstanding auto debt is frequently more than 150% of the vehicle value.

So, for example, let’s say the outstanding loan amount is $20,000 but the vehicle is only worth $11,000. If you reaffirm the debt, you take on an additional $9,000 of debt. The loan is “under water”, which means that the amount owed exceeds the value of the vehicle.

If you can redeem the value by paying fair market value, that’s the best option for you.

You can learn more about your rights to bankruptcy and whether your reaffirmation or Section 722 Redemption is best for you. Contact Tampa Bay Bankruptcy Firm, Sunshine State Bankruptcy today at 727.258.4999.

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