How to Decide Whether to Reaffirm a Car Loan in Bankruptcy

• How much is the car worth in its current condition? Is the loan balance more than that? Remember, you are agreeing to continue to be responsible for paying the loan after the bankruptcy is over. Every other debt, except this one, will be wiped out. What if the car gets totaled in an accident, and the insurance company pays you less than the loan balance? Now you owe money and no longer have the car.
• Does your bank insist that you reaffirm the debt, or pay off the loan, if you want to keep the car? Not all banks do, and will let you keep the car as long as you keep up the payments, and maintain the insurance called in the past the "Pay and Ride" option. You need to discuss this with your attorney to see if this is an option.
• Is there a co-signor who is not in bankruptcy? If so, the bank may well not be able to repossess the car if you have not reaffirmed the debt (as long as payments and insurance are kept up) because the co-signor is not in default for failure to reaffirm.
• Can you really afford it? Really? If you are already deficit spending, the likelihood of your missing a payment or two in the future is very high. In that event, the car will be repossessed, and you may well be left with a loan balance that you can never get rid of. This can also be a factor of how many more payments you have on the loan. Is it a few months or a few years? The longer the time, the greater the risk that something will go wrong.
• Do you really need this car (or a car at all)? People are of a mindset that they need a car because they have a job. They also get very emotionally attached to the one they have and do not consider other options. But is there a public transportation option? An office carpool? Can your spouse drive you to work? Even if you do need a car of your own, that does not mean that you need the car you have. Is it a gas guzzler? Would a smaller, cheaper one do just as well? Could you use a tax refund to buy a cheap used car for cash?

Looking for more information about bankruptcy? Get the answers to the most frequently asked questions by downloading my free book, Top Questions People Ask About Filing Bankruptcy in New Jersey. It will give you the answers you need all in one place. Then call me at 888-857-8418 or contact me through this site for an appointment for a free consultation to discuss your case.