BK Chapter 7 and Auto Loans

azfitz11 · ‎02-18-2018

Is there any advantage or disadvantage in giving up your autos in a chapter 7?

Anonymous · ‎02-18-2018

Every situation is different.

If you're upside down (owe more than the car is worth), it's generally not a good idea to reaffirm this loan. If retain and pay isn't an option, surrendering the vehicle may be a good financial option. With a surrender, there may be a few (or many) months where you'll have the car and can drive it without an auto loan payment before it gets repossesed. A down side with this plan is that if you bet on having a "free" car, you may be without the car at any moment if it's up for respossesion.

Another down side with surrender is that you won't have a car. So obtaining another loan may be difficult, or result in a loan at a high interest rate. Some buy a used car for a few thousand to avoid an auto loan.

If you want to keep you car, I would carefully review the retain and pay option as well as redemption, before making a decision. If you post the details of your scenario, you'll likely get more customized advice.

azfitz11 · ‎02-18-2018

@Anonymouswrote:
Every situation is different.

If you're upside down (owe more than the car is worth), it's generally not a good idea to reaffirm this loan. If retain and pay isn't an option, surrendering the vehicle may be a good financial option. With a surrender, there may be a few (or many) months where you'll have the car and can drive it without an auto loan payment before it gets repossesed. A down side with this plan is that if you bet on having a "free" car, you may be without the car at any moment if it's up for respossesion.

Another down side with surrender is that you won't have a car. So obtaining another loan may be difficult, or result in a loan at a high interest rate. Some buy a used car for a few thousand to avoid an auto loan.

If you want to keep you car, I would carefully review the retain and pay option as well as redemption, before making a decision. If you post the details of your scenario, you'll likely get more customized advice.

I can afford to retain and pay.

I am upside down on all 3 vehicles. 2 are with Penfed. The 3rd is with CULS.

I owe $32,000 on my wifes 2016 Mini

$17000 on my sons Camaro, and

$9000 on a 2012 Nissan.

Interest rates all under 6% interest.

What other info should I include?

Anonymous · ‎02-18-2018

One note, this isn’t a decision you have to make until 30-45 days after you file. You are asked your intentions from the start but that’s not a binding agreement. So don’t need to know going in if you want to keep the car or not.

What I found out, the downside of financing with a credit union is you often must sign a reaffirmation in order to keep the car. Even if you pay on time they will often take the car. I think regular banks would rather you pay instead of repossessing, even if you don’t sign an agreement. If you are underwater and sign a reaffirmation make sure you’re 100% covered with gap insurance because if you total the car you’re on the hook for the balance after insurance without it.

Although losing my car was scary because of the unknown. I had to build up the courage and not reaffirm my car loan. I needed a lower monthly payment for my “positive net worth” lifestyle post bankruptcy and giving up the car was a way to do that without paying many thousands in negative equity for a new loan.
To calm my fears, I was super conservative and started renting a car a couple of weeks before discharge. I couldn’t risk them showing up at my workplace and taking my car. They repossessed it not even a week after discharge from outside my home. I used the money I saved from 3 months of not making car payments to rent the car. I financed a car at 4.91% 2 weeks out of bankruptcy through capital 1. I believe i was able to get that rate because the BK is literally my only baddie on my CR and I didn’t burn cap 1.

If you choose the right BK attorney, they’ll be able to assess your situation and offer tailored advice (I have a 401k that was protected that I could borrow against for a auto after BK in case no one would finance me as a “plan c” for instance.)

One question I’m curious to hear the answer to is if anyone regrets giving up their car when it’s all said and done. I don’t, but I’m sure others have different experiences!

azfitz11 · ‎02-18-2018

Thanks, so much to think about. I have a company vehicle I can use for what I need. I was considering giving them all up do to being so upside down. I just don't if it's better for my credit to keep them or does it matter, due to filing BK

Anonymous · ‎02-18-2018

If you don’t want to keep the cars and have access to a car for work I would 100% ditch the negative equity and use the 3 months of car payments to purchase a car outright post BK or make a down payment (which can get you better interest rates as well).
This is a once in a 8 year (hopefully lifetime) chance to start with a clean slate!

Your credit will be poor but since it’s isolated in 3 months, time will heal and getting a new auto loan will be perhaps the easiest part of the rebuilding.