One option people must consider as they go through a Chapter 7 Bankruptcy with a Car Loan is whether they wish to reaffirm that debt or not. For a lot of people, this can be one of the more important decisions to make as you go through this process.
A Reaffirmation agreement, if signed and approved by your judge, will result in your continuing liability for the debt that on which that agreement is based. This is a very dangerous area of law and many attorneys will advise against signing these agreements.
Before you file bankruptcy, you see, you are liable for all of the debts you owe. Bankruptcy is supposed to discharge that liability and get you a fresh start. If you sign a reaffirmation agreement, however, you are going to continue to be liable for that debt even after bankruptcy.
This can be very harmful. If you cannot make your car payments after the bankruptcy, the car can be repossessed and the creditor can come after you for any deficiency you owe. Therefore, if you reaffirm a debt owed on a car where you owe $15,000 but the car is only worth $8,000, then the creditor can come after you for the difference even though you filed bankruptcy.
Many many attorneys will advise against signing a reaffirmation agreement. It is often possible to simply retain your car and make your payments. It is also possible that you can trade in your old car and get a new one.
Many options are available so you must weigh these options carefully in order to get the most out of your bankruptcy experience, which should be a once in a lifetime event.