Refinancing through Auto Loan Reaffirmation Negotiation in Indiana Bankruptcy

            Before I get too far into negotiation of reaffirmation agreements, it would probably be helpful to review exactly what is a reaffirmation agreement and what does it have to do with Indiana bankruptcy?

            To put it simply, a reaffirmation agreement is a contract between a person who has filed bankruptcy (called a debtor) and a creditor with a secured interest owed money in a Chapter 7 bankruptcy.  When a person files a bankruptcy petition he or she must list all of his creditors.  This includes creditors for a vehicle or house the debtor wishes to keep.  As I often tell folks I meet with that you can't pick and choose which debts to include in bankruptcy.....all debts must be listed in your bankruptcy petition.  However, that does not mean you cannot keep your car or house in bankruptcy.  A reaffirmation agreement is a contract that basically says that even though you could walk away from your house, vehicle, or other secured property and not owe any more money on that debt after bankruptcy that you would like to keep the property, to continue to make the payments on the property and if after the bankruptcy the property is repossessed you agree that you are liable for the deficiency on that property.  For example, if you would like to keep a car that you still owe money on after bankruptcy your bankruptcy attorney could obtain a reaffirmation agreement stating that your regular monthly payments would continue until the car was paid in full.  If you sign that agreement and the bankruptcy court approves it you can keep the vehicle so long as you continue to make the payments.  However, if you get behind on the payments a year after your bankruptcy is discharged and it gets repossessed you are on the hook for the money owed.

            While it has been my experience that mortgage companies will not often negotiate on the terms of a reaffirmation agreement, it is sometimes possible to negotiate the terms of a reaffirmation for an auto loan.  For example, if you owe $14,000.00 on your vehicle at a rate of 12% interest and a payment of $375.00 per month (I am sure that this payment does not line up at all with these numbers...this is for illustration only), you may be able to change the terms of your repayment to favor you after bankruptcy.  Perhaps you can decrease the interest rate thereby lowering your payment or decreasing the amount of time you will need to pay on the vehicle loan prior to paying it off.  In my experience, the higher the interest rate and the less valuable the vehicle, the better the odds that your creditor will agree to a reduction of your interest rates and/or payments.  My thought is that the creditor realizes that the secured property is not worth what is owed on the loan and knows if the debtor surrenders the vehicle the lender will make less than if the lender agreed to modify the terms of the reaffirmation agreement.  However, there is no obligation for a lender to change the terms.  The way I see it, there is no harm in asking whether your auto loan can be modified via reaffirmation agreement.  It is simply one more way that Chapter 7 bankruptcy can help a debtor obtain a fresh start after bankruptcy.

            If you have questions about bankruptcy and are considering filing, call my office to schedule an appointment (317) 575-8222.  There is no fee for this initial consultation for those considering filing bankruptcy.  I am happy to meet with you to answer your questions and let you know what is and is not possible through bankruptcy.

Halcomb Singler, LLP, is a debt relief agency.  It helps people file for bankruptcy under the bankruptcy code.  No attorney-client relationship with the firm of Halcomb Singler, LLP, is created through this blog. Also, please note that Erika Singler is an attorney licensed in Indiana and does not seek to practice law in any jurisdiction in which they are not properly authorized to do so.  The information contained in this blog is general in nature and should not be relied upon for the circumstances of any individual(s) or businesses.