We have covered the basics of Reaffirmation Agreements and whether you should reaffirm your home loan, and now we’ll tackle whether reaffirming your car loan is a good idea. While Bankruptcy lawyers rarely recommend reaffirming a home loan (in fact, we almost always oppose it), the analysis is a little different for vehicles. It is important to know that any reaffirmation agreement should be carefully considered and weighed against the potential future burdens of waiving a discharge for that debt. In general, vehicle lenders are a little quicker to repossess your car than your home lender and although it varies by state, repossessing a vehicle is much easier than a foreclosure. In Georgia, for example, if a person is one day late on a car loan, they could walk outside to an empty driveway. Since most people do not live near reliable public transportation, this means a person who can’t get to work is in danger of losing their job within a few short days. In addition, at least one lender-arm of a major manufacturer has had a policy of repossessing all vehicles unless a reaffirmation agreement is signed, and many smaller lenders and shady “buy here/pay here lots” will do the same. Here are a few factors to consider, and discuss with your lawyer, when considering reaffirming a car loan:
- Can you afford the car loan going forward until the loan is paid off? Comfortably afford, without having to skimp on other necessities? If not, do not reaffirm. It may also not be approved by the Judge.
- Do you really need the car? Can you get by with one car per couple, or use public transportation until you are back on your feet and can buy a car outright (if the lender chooses to repo)?
- What is the value of the vehicle and the loan balance? We all know that new cars drop in value by several thousand dollars the instant you leave the lot. If you did a no-money-down six year loan, you will owe more than the car is worth for 2-3 years. This should be considered; however, we also consider the big picture and necessity of having a car to get to and from work.
- Is the lender offering any benefit, such as a lower interest rate or waiving any default penalties?
- Is your lender a bank or credit union, and you know your account representative by name when you walk in the bank? Although this is unusual these days, it can help.
- Is it a Title Pawn or Buy Here/Pay Here loan with an outrageous interest rate? You should not even consider being saddled with this debt after Bankruptcy.
The bottom line is that every situation is different, so reaffirming any debt should be discussed with your lawyer. Reaffirming a debt you cannot afford means that you you will lose the car and you will still owe a deficiency balance on the loan going forward.