Reaffirming Your Car Loan in Chapter 7 Bankruptcy in Texas

 Posted on October 04, 2023 in Chapter 7

When filing for Chapter 7 bankruptcy in Texas, consider reaffirming your auto loan to keep the vehicle. Reaffirmation can allow you to retain an asset while upholding payment obligations. A Texas lawyer can help you with the proper steps to ensure you are going through the process correctly.

What Happens to Debts in a Chapter 7 Bankruptcy

Chapter 7 bankruptcy provides the filer relief by liquidating most unsecured debts like credit cards and personal loans. This gives the filer a fresh start financially. However, filing Chapter 7 means you have a choice regarding secured debts, like car loans or mortgages tied to a vehicle or home as collateral. 

You can either reaffirm the loan agreement and continue making payments or surrender the collateral to the lender. If the car loan is not reaffirmed, the lender can repossess the vehicle even if all payments are current.

Criteria for Reaffirming a Debt in Texas

To legally reaffirm a debt like an auto loan in Texas, certain criteria must be met: 

• The loan and collateral agreement must have been established before filing bankruptcy.
• There can be no defaults on the terms; the account must be current on payments.
• The court must approve the reaffirmation agreement itself. 

Ideally, the reaffirmation agreement should be submitted and approved before the final discharge date for the Chapter 7 case.

Negotiating the Reaffirmation Agreement

Lenders will often agree to a reaffirmation of a car loan to keep receiving payments on a debt with existing collateral they can seize if needed. The filer has some leverage to negotiate better terms for themselves in the reaffirmation agreement, such as a lower interest rate, reduced monthly payment, or waiving late fees and penalties. However, there is always the risk of the lender refusing to reaffirm new terms and repossessing the vehicle if no compromise can be reached.

Weighing the Pros and Cons of Reaffirmation

Reaffirming continues legal liability for the debt and keeps the collateral at risk of repossession in case of future default. But reaffirmation also allows the filer to retain a needed asset like a vehicle while upholding obligations. 

Default risk is minimized by negotiating better payment terms in the reaffirmation agreement. For many people filing Chapter 7, thoughtfully reaffirming certain debts can optimize bankruptcy relief.

Contact a New Braunfels, TX, Bankruptcy Lawyer

Going through a bankruptcy process can be stressful. Making sure you follow the proper steps is vital. A San Antonio, TX bankruptcy attorney can help ensure you are on the right track. Call Law Offices of Chance M. McGhee at 210-342-3400 to schedule your free consultation today.