In California, and in all of the states bordering California as well as much of the rest of the country, a vehicle lender has the right to repossess a vehicle as soon as the bankruptcy is completed even if the debtor is current on monthly payments and has appropriate insurance in force, IF the debtor did not sign and timely file a reaffirmation agreement. So if you want to keep your vehicle, you generally have to reaffirm the debt.
HAS THE LAW CHANGED ON THIS, BECAUSE THIS IS DIFFERENT FROM WHAT I'VE HEARD IN THE PAST?
Yes, the ride-through option was available to debtors for many years. But then Congress passed a major amendment of the Bankruptcy Code in 2005. Its effect on reaffirmation agreements in California was up in the air for a while after. But in May 2009 the Ninth Circuit Court of Appeals—which essentially decides these kinds of issues for most of the western part of the country—held that the 2005 amendments no longer gave debtors the ride-through option. (See the Ninth Circuit's opinion, In re Dumont.). Prior to this decision and the amendments debtors were allowed to retain their vehicle without signing a reaffirmation agreement.
SO THERE'S ABSOLUTELY NO CHOICE—YOU'VE GOT TO REAFFIRM TO KEEP A VEHICLE?
First, although many vehicle lenders DO require debtors to sign a reaffirmation, some DON'T. There is no hard and fast list on this because it's a matter of the lenders' discretion, which can harden or soften over time. This is another reason for you to work with a highly experienced bankruptcy attorney, one who deals day in and day out with all of the national and local vehicle lenders and knows their practices. Generally Ford Motor has taken the position that if you do not reaffirm your vehicle they will repossess your vehicle even if you are current on the payments.
WHAT CAN I DO IF I NEED MY VEHICLE, BUT ARE NOT SURE I CAN AFFORD IT IN THE FUTURE?
There are a few options available if you are uncertain whether you will be able to continue to afford your vehicle in the future.
- Retain and Pay, If Creditor Allows-Your attorney can contact your car lender and confirm whether they do require a reaffirmation agreement. If the lender is willing to have you retain the vehicle and just continue to make the payments, then do not reaffirm. If for some reason you default in the future and cannot continue to make the payments, then the lender has the right to repossess your car. If you did not sign the reaffirmation agreement the lender will not be able to seek a deficiency judgment against you.
- Back Door Ride Through- If your lender requires a reaffirmation agreement then you may be able to get a back door right through. If your budget is negative with paying your vehicle then generally your reaffirmation agreement should be set for a hearing. At the hearing the judge will determine if the reaffirmation agreement places an undue burden on you. Generally judges will not approve the reaffirmation agreement if you have a negative budget. If this occurs you should be allowed to retain the vehicle and continue to make the payments without a reaffirmation agreement. The argument is that you have complied with all that is necessary to reaffirm the debt and if court denies the reaffirmation, then you should be able to retain and pay.
- Find a Replacement Vehicle-If the car lender is requiring a reaffirmation, then try to find a replacement vehicle that has a more reasonable payment. If you are able to finance a more reasonable payment then surrender the current vehicle in your bankruptcy.
- Negotiate the Terms of Your Reaffirmation-some car lenders may be willing to negotiate the reaffirmation terms. If you are able to reduce your monthly payments then you may feel more comfortable with signing a reaffirmation agreement.
Before deciding on the best course of action for your reaffirmation agreement, consult with your local bankruptcy attorney. Once you know your options you can make an informed decision as to what is in your best interest. For more information on Reaffirmations go to:Reaffirming Your Vehicle in A Chapter 7 or to
What Should I Expect At My Reaffirmation Hearing?