Redeem vs reaffirm auto loan questions

[masscredit]

I'm going some research to see what happens to a car loan when filing for bankruptcy.  From what I've read, a person can surrender the vehicle, redeem the loan or reaffirm it.  This is coming from a law website I'm reading -

First, you have to option to “redeem” the property, which means that you can satisfy the debt in full by making a one-time payment in the amount of the secured value of the loan. This option can be beneficial if the property is underwater, meaning that its fair market value is less than the amount owed on it. For example, if you own a car worth $5,000 but owe $8,000 on it, you can satisfy the car loan in full by making a one-time payment of $5,000. There are finance companies that provide loans for this purpose, but the terms of any such loan should be thoroughly reviewed with your attorney first. Court approval is also needed.

--- So, if I'm reading this right, if a person owes $20K on a car that has a book value of $15K. The bank will accept the $15K and the person keeps the car.  Is this correct and if so, how common is this?  It sounds like it would be a good deal if you have the funds to do it.

Alternatively, you can choose to “reaffirm” the debt, which means that you will not receive a bankruptcy discharge on it. Reaffirmation options should be thoroughly discussed with your attorney prior to filing, but as the law currently stands in Massachusetts, you should not be required to reaffirm in order to retain your property.

If you do not reaffirm the debt, then you will receive a discharge of the amount owed. This will not impact your ability to continue making payments and keep the property, and will not prevent the creditor from foreclosing/repossessing if they are not paid. However, if at some point in the future you are unable to make payments, then a discharge would eliminate any further liability if a foreclosure or repossession occurs.

If you decide not to reaffirm, creditors generally stop reflecting continued payments on your credit reports. And, depending on your lender, it might also be more difficult to obtain a refinance or mortgage modification.

On the other hand, many attorneys generally advise against reaffirmition because (1) these debts tend to be your largest and (2) foreclosure/repossession sale prices tend to be significantly deflated, and therefore large deficiencies can still be owed after them.

--- Looking at this, if the loan is reaffirmed, you continue to make payments on the vehicle. Is it like a refinance where the rate might be higher because a person now has bad credit or would it continue at the rate that it's been at?  And it sound like this loan would report to the CRA while a loan that isn't reaffirmed would not. Correct? And reaffirmed or not, do leaders generally want to take the vehicle if the person has been paying for it. no missed payments straight through from the beginning? 

[FireMedic1]

Short version. If you reaffirm. You will still make payments (on-time) and it will report to the CRA's. If you mess up. Its like you never filed BK and they can repo the car.

If you dont reaffirm. You can still make payments (in most cases depending on lender) keep the car but it does not report to the CRA's. But if you decide you dont want the car. Turn in the keys and walk away and you owe nothing.

It all comes down to who the lender is. Some make you reaffirm, and some dont. Your lawyer will know whats best on that particular lender. Hope that helps. Good Luck!

[sccredit]

To address your question a redeeming - it is NOT common.  Also, I don't believe the lender is forced to accept. 

[masscredit]

So it sounds like reaffirming is common?  Just continue payments like normal and they will report to the CB which will help rebuild credit. Can a bank/credit union turn a person down if they want to reaffirm? 

[FireMedic1]

Who has the loan. A bank or credit union. Credit unions usually make you reaffirm.

[masscredit]

DCU Credit Union. 

[FireMedic1]

Maybe someone here had had a car with DCU and BK. Dont know how they operate with a BK. Google DCU reaffirm and you'll see a few threads from here. Some are old. But none hit the nail on the head. Good Luck either way!

[2b2rich]

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@masscredit wrote:

So it sounds like reaffirming is common?  Just continue payments like normal and they will report to the CB which will help rebuild credit. Can a bank/credit union turn a person down if they want to reaffirm? 

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Yes, they can refuse to reaffirm. Most creditors will not reaffirm a loan that is behind on payments, and those who will reaffirm them will require all payments to be brought current before they do. I remember telling my attorney that I wanted to reaffirm my mortgage and they sent the request to my lender, but we never heard anything from them about it.  It was getting really close to my discharge date and the more I leaned, the more I decided I did not want to reaffirm the mortgage so ended up not doing it.  I actually believe it may have been overlooked on my creditor’s side because not only had I never been late, but I often paid extra toward the principal.   I still have my house and my 3.5%, 30 year fixed mortgage.

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