Posted by Robert Weed / in After Bankruptcy, Weekly Posts /

Keep the Car In Chapter 7 Bankruptcy: What Are your Choices?

When you file Chapter 7 bankruptcy, you are “in the drivers seat” with some choices on how to keep the car.

One choice is to give it back.

One choice is to give it back.  Especially if you have a terrible interest rate on the car—and if you can put your hands on a junker—give them the car back. You are supposed to give the car back six weeks after you file your bankruptcy case. That gives you time to figure out another way to get around.

(Finding another way to get around is NOT going out and financing a car right after the bankruptcy. You’ll find car dealers eager to put you in a car at 24%—that gets you right back into financial trouble. But if you have a friend or family member who can give or lend you a car for a year or longer, you can then find some good financing deals. You can read about Alice, who got a 4.76% a year after bankruptcy. People who have a friend or family member who knows a lot about cars, also have good luck buying a car for cash, through a site like EBay.)

You can keep up the payments and keep it

Except for the special problems with Ford and Credit Unions, you can keep up the payments and keep your car. For most people, this is the best choice. No paperwork is required, you just need to be sure to make the payments on time. If you get late, they won’t call and yell at you. (That would violate the bankruptcy discharge.) They will just come and get the car.

Since they don’t want to violate the bankruptcy law, most car finance companies will stop billing you. You need to pay them on your own. Honda Financial Services has a good set of instructions. And here are sample instructions from USAA. Making the car payment will be like paying the rent—you gotta remember.

You can redeem your car.

If you owe more than your car is worth, but really like your car, you can redeem it. You can keep the car by just paying the book value. (Book value under the 2005 law is what you’d have to pay to buy it.) There are some honest lenders who will finance that straight out of bankruptcy.  One we use is called 722 Redemption. If you know your car is in good shape, this can be the way to go.

But you now have an after bankruptcy car loan. If you pay it, you are building up good credit. If you don’t, you are building up after-bankruptcy bad credit. You really don’t want after-bankruptcy bad credit.    

You can keep up the payments and change your mind later.

Suppose a year later, your car has mechanical problems. You can change your mind and give it back.

The good thing about keeping up the payments is, down the line you can change your mind. Suppose a year later, the car has mechanical trouble. You can give it back without owing anything and without damage to your credit.

Suppose a year from now, your uncle offers you his car. You can give the old one back, without owing anything and without damage to your credit.

Suppose two years from now, your credit union will offer you a car loan at 3.9%. You can give the old one back, without owing anything and without damage to your credit.

People often ask me, how long do I have the option to give the car back? My answer: Until it’s paid for. Once it’s paid for, you can’t give it back.

Is there any paperwork? None. Just call and tell them to come and get it. Or, stop paying and they will come soon enough.

Can I keep the car without making the payments?

The short answer is, No, you can’t keep the car without making the payments.  

At least, you can’t keep the car–unless the car finance company never bothers to come any get it.  Sometimes they never bother. If the car will bring good money at a car auction, they are going to come and pick it up.  But recently, a couple of people have told me nobody ever came and got their cars. Those were cars with about a hundred thousand miles on them–not junkers. But the credit union, in both cases it was a credit union, never picked them up.

So, you might get lucky. 

Can I reaffirm the car loan?

There are reasons why some people need to reaffirm car loans with Ford or with Credit Unions. Except for them, reaffirming a car loan is not a good idea.

The car loan people want you to reaffirm—because it benefits them, not you. When you call, they will tell you your lawyer should have reaffirmed—because it benefits them, not you.

Under the law, the judge will not approve a reaffirmation, unless I sign off that it’s a good idea. 

I don’t think it’s a good idea. So I’m not signing off. So the judge is not approving it. (The judge can, and often does, turn it down even if a lawyer signs off. Which I don’t.) 

I explain more on that, here. 

Posted by Robert Weed / in After Bankruptcy, Weekly Posts /

Alice Gets After Bankruptcy Car Loan at 4.76%

Less than a year after bankruptcy, Alice got approved for a 4.76% loan on a Nissan Versa.

Alice came to see me in March 2015.

She’d just gotten back to work after being out for over a year.  Her financial situation was so bad, she’d been living in a women’s crisis center, at very low rent

We filed a Chapter 7 bankruptcy.  Even working again, she could not afford her credit cards.  I told her filing bankruptcy was the fastest way back to good credit.  Much better than continuing to send in late and partial payments.

Good news in April 2016.  Alice just emailed me to tell me about her after bankruptcy car loan.

Here’s the rest of the story in her own words.

Hi Bob,

So as you may recall, after my bankruptcy discharge in June, three months later at the end of August I had to turn in my leased Honda.

You told me that every month I could wait for a car I would save. So I have lived without a car for seven and a half long months.

I have walked and taken the bus and the metro through the winter. And it looks like it’s paying off!

On Saturday I went to a Nissan dealer, and they were able to get me financing at 4.76% for a shiny new black 2015 Versa Note SV! Today I went back there tonight to make sure the bank had actually given final approval for the financing at that rate – I told them on Saturday that even though it was in the range I was pre-approved for, I thought it was too good to be true.

But apparently it IS true! They showed me the screen today that tells them they have received final approval, and they assured me that they have it.

Less than a year after Chapter 7 discharge, I have a new car at 4.76% – 259 a month for 72 months! (I know that’s long but this is a new Nissan with some options that should help the resale value and I plan to refinance in 6 months or a year for a lower interest rate and shorter term.)

It’s been a slog for 10 months but maybe I’m seeing the light at the end of the tunnel!

Thank you again, SO much, for everything! The world needs more of you.

Grace and peace to you,

–Alice

Posted by Robert Weed / in After Bankruptcy, Weekly Posts /

Terrance was standing outside my door when I unlocked, Friday last week.

Terrance filed Chapter 7 bankruptcy with me, January 2013.  I tell people you can get approved for a mortgage as soon as two years after your bankruptcy discharge.  Terrance got his mortgage approved two years and four months after his bankruptcy. Or he thought he did.  They told him in December, everything was fine. Last Thursday, they turned him down.  He was scheduled to close on his new house, Tuesday. He freaked.

There was a problem on Terrance’s After-Bankruptcy Credit Report

In December, the mortgage company said they’d fix the problem on Terrance’s credit report. They didn’t.

When he first applied for the loan, the mortgage company told him there was a problem.  One of the debts discharged in his 2013 bankruptcy looked like it was still there.  Terrance made an appointment to see me last December; but then he cancelled.  

The mortgage company told him they would take care of it.  Turned out they didn’t.

Here’s the happy ending.

I’m one of maybe fifty bankruptcy lawyers around the country who fights all the time for my clients to fix their after-bankruptcy credit report.  Because of my experience, I knew the compliance officer at the outfit that was causing the problem. I had his phone number and email, and he was in his office that Friday morning. I got him.

By noon, we got the paper the mortgage underwriter needed, showing that debt was taken care of in the bankruptcy.  The mortgage got approved Monday.  Terrance bought his house on schedule, Tuesday.

Two Lessons

I think every bankruptcy lawyer needs to know at least a little about Fair Credit Reporting. You don’t really get your “fresh start” in bankruptcy, if your after-bankruptcy credit report is wrong.  

You should really check your credit report, with your lawyer, a couple months after your bankruptcy is over.  (And keep checking it.)  Don’t wait until you are turned down for your after-bankruptcy mortgage.

My Promise

I promise to fight for you to make your after-bankruptcy credit report right, for as long as five years.  You can read more about that, here. 

Most bankruptcy lawyers will have nothing to do with after-bankruptcy credit reports; and sometimes it makes a enormous difference.​