Should I reaffirm my car loan in Chapter 7 bankruptcy?

Most people who file bankruptcy want to keep their car and continue to pay their car loan. Filing Chapter 7 bankruptcy should not cause you to lose your car.  A reaffirmation agreement waives the discharge of your personal liability on a particular debt. When you reaffirm a debt, the bankruptcy no longer applies to that debt. In most states, your car can be repossessed even if you are up to date with your car payments, if you do not sign a reaffirmation agreement in a bankruptcy.

However, Connecticut passed a law that says your car cannot be repossessed just because you filed bankruptcy. That law is C.G.S. 36a-785.  Put simply, if you live in Connecticut, you can continue to pay your car loan and keep your car after the bankruptcy even if you do not reaffirm.

Even though you do not have to reaffirm a car loan in Connecticut, reaffirming might be a good idea.

Reasons to reaffirm your car loan in Bankruptcy

  1. If you can definitely afford the monthly payments, reaffirming your car loan will help you rebuild your credit. If you do not reaffirm, the car loan will not be reported on your credit report.
  2. If you may move to another state, reaffirming your car loan will ensure that your car cannot be repossessed just because you filed bankruptcy.
  3. If you want to pay your car loan online, or speak to customer service, reaffirming your car loan allows the car loan company to treat you like their other customers. If you do not reaffirm, you will only be allowed to speak to the bankruptcy department and online payment is usually not allowed.
  4. When it is time to get a new car loan, the car loan company will be far more likely to give you a new loan if you reaffirmed the old one. 

Risks of reaffirming a car loan in Bankruptcy

  1. If you cannot afford to pay the car loan and the car is repossessed after reaffirming, you will be personally responsible to pay the difference between the car’s auction value and the amount you owe on the car loan. Late payments and repossession can be reported on your credit report if you reaffirm.
  2. If the car requires more mechanical work than you can afford, you can do a voluntary repossession and owe nothing if you do not reaffirm.
  3. If the car is totaled, hopefully you have gap insurance. If you do not, you may be on the hook for the car loan if you reaffirm.
  4. Many car loans last 5 years or more. Unfortunately, you may not want or need the car anymore before end of the loan. If you reaffirm, you must pay off the loan or it will damage your credit report.

Like many aspects of bankruptcy, signing a reaffirmation agreement is a decision that depends on your specific situation. Before making any decisions, you should consult an experienced bankruptcy attorney for individualized advice.