I am always amazed how low some organizations can be when preying on people who have filed for bankruptcy. A client recently passed along a solicitation letter that she received in the mail. It is an obvious post-bankruptcy car loan scam.
Basically, this letter says that once you file for bankruptcy, all your creditors will stop reporting activity on lines of credit, including your car loans, to major credit bureaus. Further, the letter states, “Keeping an auto loan through a bankruptcy is NOT considered re-establishing credit. You must make a new purchase after a bankruptcy in order to re-establish credit and we are happy to assist you in this sometimes difficult task.” And, they say once you secure an auto loan, your credit score can increase by 100 points. Of course, the letter does not include loan terms or other relevant information. It is a scare tactic meant to pound fear into the vulnerable and uninformed bankruptcy filer by feeding MIS-information.
Reaffirmation of Loans
Okay, now here’s the deal. When going though a Chapter 7 bankruptcy, you may decide that you want to continue to pay certain debts out of necessity. A car loan is a great example because you still need to go to work and so forth. If you want to and need to keep your car, you can reaffirm your car loan during the Chapter 7 process. In short, reaffirmation is an agreement where the debtor is contractually obligated to continue paying off a loan to a lender after the bankruptcy case is over. In a reaffirmation, the debtor promises the court and creditor that he/she will continue to pay the loan. The terms of the loan remain the same.
For those who reaffirm their car loans, all payments are reported to the credit bureaus. Bottom line, if you want to keep your car – reaffirm the loan. This will improve your credit score. If you do not intend to keep your car after the Chapter 7, do not reaffirm the loan. If you choose not to reaffirm the loan, you are not liable for any balance or deficiency.
When taking clients through the bankruptcy process, we discuss the options and benefits of reaffirming loans. I strongly urge people to not get sucked into a post-bankruptcy car loan scam. With proper planning and a little knowledge, you can avoid these scams. Please call me if you have any questions about this blog or other bankruptcy related questions.