What does Reaffirmation of an Auto Loan mean?

A Chapter 7 reaffirmation of a vehicle loan entails a consumer (the debtor engaged in the Chapter 7 process) agreeing to accept legal and financial responsibility for a vehicle following the closure of the Chapter 7 case. What this means, in plain words, is that a debtor agrees to continue making payments on his or her auto loan, and in turn, the auto loan lender agrees to forgo repossessing the vehicle, assuming payments are made within the required guidelines.

During Chapter 7, secured loan debts are non-dischargeable, or in essence, if a debtor wishes to be free from a secured loan agreement, he or she must give up the underlying asset securing the loan. In cases of auto loans, this will be the vehicle itself. By continuing to make payments, the debtor has a legal right to retain the asset in question (vehicle), but in many cases, auto lenders require a reaffirmation agreement to confirm and continue this lifetime of the loan. The one notable caveat to the reaffirmation agreement is that a debtor must receive judicial approval to engage or continue this transaction. This approval will come from the courts or bankruptcy trustee overseeing their Chapter 7 case.

Bankruptcy law is a complex matter, often subject to state interpretations of federal bankruptcy laws and constrained by other case-specific considerations. Without legal counsel, who is fully informed about the ongoing bankruptcy process, a consumer is essentially without any recourse when it comes to contesting a denied reaffirmation of loan or preventing preemptory repossession of the vehicle by lenders. Consult with a bankruptcy lawyer in your state to learn about your specific legal rights when it comes to retaining personal vehicles during Chapter 7 today.