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Chapter 7 bankruptcy

MSTRSHIFU
New Visitor

Chapter 7 bankruptcy

I am in the process of filling chapter 7. I am just waiting for my home to close that I am selling. I have a lease car that is due to be returned September 15 2017. Is a 2014 with 85,000 miles. I want to surrender the lease car, not make the final payment on August 15, and get a new car before I officially file my chapter 7. I have secured a loan through Santander consumer USA for a new or used car. I will be getting a new car cause I drive 200-300 miles a day for my job and need the reliability. I have been reading a lot about reaffirming car loans and the bank not reporting the loan on your credit report after the reaffirmation. Do I need to reaffirm or retain and pay as I have read? And why would the loan not be reported to credit bureaus so that I can build my credit? Also in the agreement for the loan it states I will be in default of this note if I file a bankruptcy petition. What does that mean and should I be worried with that kind of language?
8 REPLIES 8
DaveInAZ
Senior Contributor

Re: Chapter 7 bankruptcy

Well, a couple of things to consider here:

 

- Closing on selling your home: Will you make a profit, receiving an amount of cash resulting from the selling price minus mortgage balance & closing costs? In a BK7 you are allowed to keep only a limited amount of assets, including cash on hand or in bank accounts. Assets over the allowed exemptions will be seized to distribute to creditors.

 

- New car loan: Obtaining new credit when you are planning to file BK and then filing BK shortly after getting the new loan is a big no-no. The lender can claim the loan/credit was obtained by fraud, false pretenses or a false statement made pertaining to your financial condition and have the loan/credit excluded from your BK.

 

- Default: For most loans/credit you are not in default until you are 30 days late on a payment. But some creditors insert that clause that if you file BK you are automatically in default, even if you have never been late on a payment. They list what they can or will do in event of default right after that section. Usually default on a car loan means they can repossess that car, sell it, and you are liable for any amount of the loan balance minus selling price. And especially in a new car you can be on the hook for a large amount - they sell repo'd cars at auction, bringing the lowest price, and tack on repo fees, & other fees. But few lenders will repo if you stay current of payments.

 

Having your car loan excluded from your BK or reaffirming it is pretty much the same result - you are personally liable for full amount of the loan, get behind on the payments and they will repo and you are liable for any "deficiency": loan balance + fees minus selling price. On an existing car loan included in BK and you do not reaffirm and retain & pay, your payments would not be reported because the debt is discharged and you have no liability for it anymore. If you get behind on payments all they could do is repo, end of story - you are not liable for any deficiency. 

Message 2 of 9
MSTRSHIFU
New Visitor

Re: Chapter 7 bankruptcy

The home Is a short sale and i am not worried about the home in any way. It's mainly this new car loan. I plan on kepping it, not including it in my BK and staying current. Then in a year ore more refinance the loan for a better rate and lower payments. So if I don't include this loan in the BK and stay current and never miss a payment how can they repossess something that is in good standing? Will they report my timely payments to the credit bureau? My lawyer said that all I would have to do is just reaffirm the loan in order to keep it. The language in this contract is what is worrying me but I also know the law and I believe they cannot repossess something that is in good standing and current. Correct me if I am wrong.
Message 3 of 9
DaveInAZ
Senior Contributor

Re: Chapter 7 bankruptcy

Well, I'm not an attorney, just someone who went through BK7 in 2010. That clause that you are in default if you file BK means you are in default regardless of your paments all being curre,t. But if you reaffirm and stay curre,t it is unlikely to have any problems. Ask your attorney to add a line in your reaffirmation agreement that they will report your payments, to be on the safe side.
Message 4 of 9
MSTRSHIFU
New Visitor

Re: Chapter 7 bankruptcy

Ok. I really appreciate your input. I have been reading a lot about this subject and found this wording in the contract Friday night. I emailed my attorney but won't get an answer till tomorrow. It has been eating at me all weekend and needed to find out from people in the world that have gone through this.
Message 5 of 9
camniamom
Established Member

Re: Chapter 7 bankruptcy

Another option for the car is to do a 722 redemption loan. Companies that specialize in these types of loans will give you a loan for the blue book value of the car. Your lawyer should be able to give you more information on that type of loan if you are interested in keeping your car.

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Message 6 of 9
leonel9
Frequent Contributor

Re: Chapter 7 bankruptcy

I'm on a cruise ship with terrible internet, so I can't be as detailed as I'd like. I do see a few issues raised in this post and in the replies:

 

- The person who commented on the OP's plan to sell a house prior to bankruptcy is absolutely right. You should be very concerned with the status of the proceeds from your home's sale. If it isn't planned/exempted properly, it could be taken by the CH7 trustee.

 

- I think the replies did not notice that the OPS has an auto lease, not a loan. The OP's options are limited to assuming or rejecting the lease. From there, other options to purchase the vehicle may exist, but the OP should start with that evaluation.

 

- I question the advice of NOT purchasing a vehile prior to filing. If the OP can get qualified for the loan, does not lie on credit applications, and plans on paying back the loan, this would not be considered fraud. 

 

In short, the OP should talk to a few bankruptcy attorneys, even if just for free consultations. The issues raised here may total tens of thousands of dollars. If not planned properly, the reprecussions could be serious. If nothing else, get an opinion from an attorney on the topics of exempting your home sale proceeds and purchasing a replacement vehicle.

Message 7 of 9
SteelerNYC
Valued Contributor

Re: Chapter 7 bankruptcy

Are you in contact with a lawyer?

 

You should be, and should be discussing ALL of these plans with them.

 

Based on what I know about BKs, I am seeing multiple red flags in your plans.

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Message 8 of 9
MSTRSHIFU
New Visitor

Re: Chapter 7 bankruptcy

I am. I have given all the info about the new car to my lawyer and she says it won't be a problem at all.
Message 9 of 9
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