In Chapter 7 bankruptcy what is reaffirmation of an auto loan?

Chapter 7, or total liquidation, bankruptcy involves:

• Turning over the assets you have that are not exempt for the purposes of a bankruptcy sale.
• The proceeds from items sold will be distributed to the people to whom you owe money and then any remaining unpaid balances due on eligible debts is forgiven

Because a car loan is a secured debt, however, it generally cannot be eliminated in a chapter 7 bankruptcy, so it is imperative you understand the chapter 7 auto loan rules. Most often, during a chapter 7, the vehicle you have is turned over to the creditor as part of the bankruptcy, or is sold as a result of the asset-seizure and the proceeds go first to the person to whom you owe the money for the car is paid first (followed by any other creditors, provided you have a balance left).

If, however, you want to keep your car, you may be able to reaffirm the loan. This means you keep the car and its loan out of bankruptcy and promise to pay back the debt, despite the bankruptcy. You'll need to be careful, however, because most states limit the value of autos you can keep.

The whole issue is very complex, so it is important to get help from an experienced lawyer when going through bankruptcy and trying to keep your car.