馃攳
Chapter 7 Bankruptcy - Will I Lose My Car? (Reaffirmation) - YouTube
Channel: Consumer Warrior
[1]
- Hey everybody, John Skiba here,
[2]
and in this video, I'm going to talk about
[4]
whether you can keep your car
[6]
if you're going through
the bankruptcy process,
[8]
and I'm even going to explain
[10]
how the reaffirmation process works.
[13]
But if this is your first time
here to my YouTube channel,
[15]
go ahead and click subscribe,
[16]
check on the little bell,
That way, you'll be notified
[18]
each and every week,
[19]
when I provide you with
valuable information
[21]
on how to deal with your
serious debt problem.
[24]
Alright, let's talk about
Chapter Seven bankruptcy
[26]
and vehicle loans.
[28]
This is a question I get all the time
[30]
from clients in my law practice
[32]
who are looking to file for bankruptcy
[34]
because they're dealing with
medical bills or credit cards
[37]
or whatever it is, but at the same time,
[40]
they want to be able
to keep their vehicle,
[41]
as they always say,
"That's how I get to work.
[43]
"If I can't, if I don't have a vehicle,
[45]
"I'm not going to be able to
pay any of my other bills."
[47]
And so it's a big
concern as far as whether
[49]
you can go through the bankruptcy process
[51]
and actually keep your car.
[53]
So let me give you a
couple of considerations.
[55]
And then I want to talk about
the reaffirmation process.
[58]
If you're in bankruptcy,
[59]
or if you've been doing a lot
of research on bankruptcy,
[62]
you've probably come
across something called
[63]
a reaffirmation agreement
to reaffirm your car loan,
[66]
I want to talk about what that
is and why it may or may not be
[69]
a good idea for your situation.
[71]
So first, let's talk about
Chapter Seven bankruptcy.
[74]
Chapter Seven is designed to eliminate
[77]
all of your unsecured debts,
credit cards, medical bills,
[80]
personal loans,
[82]
anything that doesn't have
collateral attached to it
[84]
generally goes away with the
exception of student loans
[87]
and taxes.
[88]
And there are even rare
exceptions when those can go away.
[91]
But when it comes to secured
debt, like a car loan,
[94]
where there's collateral,
[95]
where you know there's
property attached to it,
[97]
those are treated somewhat differently.
[100]
So if you have a car, and
you have a loan against it,
[104]
you generally can keep
that in a Chapter Seven,
[107]
so long as you continue to
make the monthly payments.
[110]
Now there's a little
asterix that goes along this
[112]
with this as well.
[113]
You can't have more equity in your vehicle
[117]
than is allowed under your
state's exemption laws.
[120]
Now, I know that probably sounds like,
[123]
what am I talking about there?
[124]
Here's what it is.
[125]
In Chapter Seven, the positive
thing is you're going to get rid
[128]
of all of your unsecured debts.
[130]
The trade off is if you
have any non exempt assets,
[133]
the court can take them,
sell them and give the money
[136]
that they receive from
selling those assets
[138]
to your creditors.
[139]
So but there are certain exemptions,
[142]
on the federal and on the
state level in all states
[145]
that protect certain basics of living,
[148]
like most people are familiar
with the homestead exemption
[150]
that protects your home.
[151]
Well, there's exemptions
for things like cars
[153]
and household goods and wedding rings
[156]
and retirement accounts and all that.
[158]
But there are certain dollar
limits that are attached
[161]
to those exemptions that
you have to be aware of.
[164]
So for example, in Arizona,
the exemption for a vehicle
[168]
and this has been
recorded in the year 2020.
[171]
The exemption on a vehicle
is you can have up to $6,000
[174]
of equity in a vehicle.
[176]
And if you are disabled
and you have a plate,
[180]
your license plate
indicates that you have,
[183]
like if you have a handicap sticker
[184]
or just a plate that has a sticker on it,
[187]
you can actually get
up to $12,000 of equity
[189]
in the vehicle that's protected.
[191]
Now, what you have to look
at then if you have a loan
[194]
is let's say that your car
is, that it's worth $10,000
[200]
that you owe $6,000 on it, and
so you have $4,000 of equity,
[205]
you'd be fine in the state of Arizona
[206]
because we can protect
up to $6,000 of equity
[209]
in that vehicle.
[210]
However, let's say that
your car is worth $20,000,
[214]
and let's say that you owe 10,000 on it,
[217]
so you have $10,000 of equity.
[219]
There may be a problem there if
[221]
because in Arizona for example,
[223]
I only have a $6,000 exemption
[225]
to be able to protect that vehicle.
[227]
So you could end up losing the vehicle,
[228]
they could take it, pay off the note,
[230]
give you $6,000 for your exemption
[232]
and they give the rest to your creditors.
[234]
That's something you're
going to need to talk to
[236]
an attorney specifically
about in your state
[238]
who knows your exact exemption limits
[241]
because that could become an issue.
[243]
So that's the first
thing we need to look at.
[245]
You also need to be aware
[246]
if you own your car free and clear,
[248]
if it's totally paid off.
[250]
If the value of it is more
than the exemption limit,
[255]
then they can take it.
[256]
So using my example, if you
own the car free and clear,
[259]
there's nothing owed on
it, and it's worth $5,000,
[263]
in the state of Arizona,
you're going to be fine
[265]
because our exemption is 6000.
[267]
It'll protect all $5,000 in equity.
[270]
However, if the vehicle is worth $15,000,
[272]
and you only have your $6,000 exemption,
[275]
they're going to sell it,
[277]
give you $6,000 to cover your exemption
[279]
and then give the rest of
money to your creditors.
[282]
It's also important to note
in the state of Arizona
[284]
and in many other states,
[285]
if you're married you can double this.
[287]
So example again in Arizona,
[289]
a married couple, each
spouse would have $6,000
[293]
in a vehicle of equity
that they can protect.
[296]
So the basic rule though
if you owe money on it,
[299]
and assuming that there's
not any value outside
[303]
the exemption limit,
you can keep the vehicle
[305]
as long as you continue
to make the payments.
[308]
Now, the flip side of that is also true,
[309]
let's say that you come
in and you have this
[312]
car payment that's just killing you.
[313]
I see this all the time now,
car loans are super expensive.
[316]
I have clients come in,
they've got a 72 month loan,
[319]
they're paying $800 a month on it.
[321]
And they've decided I just
can't do this anymore.
[324]
If that's your situation,
you can surrender the vehicle
[327]
through your bankruptcy,
[328]
and then you won't owe any money on it.
[330]
They can't sue you for the balance,
[331]
they can't come after you
later on, you'll be good to go.
[334]
So if you're in a vehicle loan, or an RV,
[338]
or a boat or something where you're like,
[340]
"I can't afford this anymore,"
[342]
you can surrender it
through the bankruptcy
[344]
and you won't owe anything on it.
[346]
Let's talk about reaffirmation agreements.
[347]
This is probably one of the
more confusing areas of the law,
[351]
this was one of the
changes that they made back
[352]
when they amended the
bankruptcy code in 2005.
[355]
That's actually a really long time ago.
[357]
In my mind, I keep on thinking
of the recent changes.
[360]
It's been 15 years.
[361]
But in 2005, they introduced this idea
[364]
of a reaffirmation
agreement on a car loan.
[368]
With a reaffirmation
agreement, what it says is
[370]
if you are going to keep your car
[372]
and you're going to continue
to make the payments on it,
[375]
that you need to be able to sign off
[377]
on a reaffirmation agreement.
[378]
This is essentially a new
contract between you and the bank,
[382]
the states that you're going to continue
[384]
to make those payments on it.
[385]
Typically how this plays out
is the reaffirmation agreement
[388]
is sent to you or your attorney
in your bankruptcy case,
[392]
they have already filled it out
[394]
with all the information
as far as the balance owed,
[396]
the interest rate, the monthly payments,
[398]
you're required to look at it,
you're required to sign it,
[401]
your attorney may sign it,
[403]
and then you provide it back to the lender
[405]
who will then submit it to the court.
[407]
Then the last step is that
the court has to approve it.
[410]
The court has to review
the reaffirmation agreement
[412]
and determined that it's
in your best interest
[414]
for you to sign off on the
reaffirmation agreement.
[417]
You may be asking yourself,
[418]
why would it not be in my best interest?
[419]
I'm willing to pay for this,
[420]
I feel like I can pay for my vehicle.
[423]
The reason why is because if you sign
[424]
a reaffirmation agreement,
[426]
and then let's say the court approves it,
[428]
and then a year from
now, something happens
[431]
and you're just not able to continue
[432]
to make the payments on that vehicle,
[434]
and then you let it go back to the bank,
[436]
they can then come sue
you for the balance.
[439]
Now, if the court had not approved
[441]
your reaffirmation agreement,
[443]
they would not be able to
sue you for the balance.
[446]
So that's kind of an
important distinction there,
[449]
is that if you have,
[451]
if you sign off on a
reaffirmation agreement,
[453]
and the court approves it,
[455]
it's highly likely that if you
lose that car down the road,
[458]
you're going to become liable for it,
[460]
they'll sue you for the
balance that's owed on that.
[463]
Because of that, I can tell
you in the state of Arizona,
[465]
I don't have any experience
[468]
doing reaffirmation
agreements in any other state,
[470]
but I can tell you in
the state of Arizona,
[472]
most of the time, the
courts will not approve
[475]
the reaffirmation agreement,
[476]
because they believe that
it's not in the debtor
[479]
or the bankruptcy debtor's best interest.
[481]
The court will say, "Look, just continue
[483]
to make the payments on it."
[484]
Under most state laws, as long
as you're making the payments
[486]
on the vehicle, they can't repossess it.
[489]
Keep making those payments.
[490]
And then if you pay it
off, great, you're done.
[493]
If you have to let it go back
even a year down the road,
[495]
then they can't sue you for it,
[497]
because that balance was
discharged in your bankruptcy case.
[501]
Now, there are some other consequences
[504]
to either having the reaffirmation
approved or not approved
[508]
by the court that you need to be aware of.
[510]
The biggest one that is
always stressful to clients
[512]
is credit reporting.
[515]
If the bankruptcy court approves
[517]
your reaffirmation agreement,
then your on time payments
[520]
will be reported each and every month
[521]
until you pay that vehicle off.
[523]
However, if the court does not approve
[526]
your reaffirmation agreement,
then the lender, your bank,
[529]
they're not required to
provide any information,
[531]
either good or bad to the
credit reporting agencies.
[534]
And they'll actually showed
that the amount was discharged,
[537]
even though you're paying
it each and every month.
[538]
So you're not going to get the credit bump
[539]
that you were hoping.
[541]
In most situations,
[543]
my personal opinion is it's
usually not worth it to sign off
[547]
on the reaffirmation agreement.
[549]
The credit bump that you
get is fairly minimal.
[552]
And there are other ways
[553]
to build your credit post bankruptcy.
[556]
Where as the consequences if you were to
[559]
have the car repossessed
after a bankruptcy filing
[562]
could be devastating,
[563]
'cause you went through
bankruptcy now you're getting sued
[565]
for possibly even a big
deficiency balance on a vehicle.
[568]
So I know that that's really
the reaffirmation agreement,
[572]
I have yet to figure out a way to try
[574]
to explain it super clearly.
[575]
I've tried to do it in
writing and video for clients,
[577]
and it still gets really confusing,
[579]
but hopefully that helps a little bit.
[581]
General rule, if you
want to keep your car,
[583]
assuming it doesn't have more
value than can be protected
[586]
under the exemption laws in your state,
[587]
you'll be fine as long as
you keep making the payments.
[590]
The alternative as well,
[591]
if you don't want to keep the vehicle,
[593]
you can let that thing go.
[595]
You're not going to owe anything on
[596]
and you get the fresh start.
[597]
Hope that helps, thanks
for watching today.
Most Recent Videos:
You can go back to the homepage right here: Homepage