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Justin Harelik, the Bankrate.com Bankruptcy AdviserAuto loan reaffirmation after bankruptcy

Dear Bankruptcy Adviser,
I filed Chapter 7 bankruptcy; I asked to reaffirm my car loan. My attorney and trustee both knew this. I never received my reaffirmation. I called the law office that was handling this (and to which I made my payment) they said they never received the affirmation agreement from the car company. I left numerous phone messages with the law office and my attorney. None was returned. I haven't made a payment in three months since I was not getting any response. My bankruptcy was discharged a few weeks ago. My attorney finally called me back saying she received the reaffirmation after the discharge and she says it's no good now. She has now contacted the car company's law office and they are not returning her calls either. She thinks they will take my car. What should I do?
-- Linda

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Dear Linda,
OK, Linda, let's take a step back from the situation for a moment. Your relationship with your attorney was clearly not the best, but it is over. The bankruptcy is discharged. So let's focus on what can be done in the present and the future.

When you first filed bankruptcy your car was protected by the bankruptcy process. As of now, the debt on the car has been discharged in your bankruptcy. But for you to keep the car, you had to agree to continue making payments or else months earlier the car company would have asked your attorney if they could pick up the car. When you filed your bankruptcy the car dealer was notified if you intended to keep the car and continue making payments or whether you intended to surrender the vehicle. Even though you have not returned the reaffirmation agreement the car dealer probably still thinks you want to keep the car.

It is likely that your car is at risk because once you receive the discharge notification you are not protected by the bankruptcy courts any longer. However, the car company would probably prefer that you continue making payments (they would likely lose money if they had to repossess the car and resell it). Therefore, if you can repair your relationship with the car company, you will be able to keep the car. How is this done?

The quick answer is to contact the car company, pay the prior three months' payments and then continue making payments. It would be even better to contact them and ask for a new, separate agreement because you cannot reaffirm the car after receiving the discharge notification. Assure them that you intend to make the payments because you want to keep the car. Even though the new laws do not require reaffirmation, you ought to try to re-establish a binding agreement with the dealer.

Reaffirming a car debt offers more protection than to simply pay what you owe. Not much, but car companies prefer it because they can sue you if you fail to make the payments. If you do or do not reaffirm, the car company still has great latitude about when they can repossess the car -- for example, if you miss a payment, they can come get it immediately. If you've reaffirmed, missing a payment does not send the repo man that day, although I have heard of car dealers repossessing a reaffirmed car one week after a missed payment!

Now, the big question is, have you saved the three months of car payments that you didn't send in? I hope you have, but it would be really normal, although irresponsible, if you've spent some or all of it. While that would be normal behavior, it's the kind that bites you back. Let's suppose you haven't saved everything -- it may be possible to get the car company to raise your minimum payment and fold the three months you owe into future payments. This, however, is unlikely because the reaffirmation agreement was never sent in. You might have an easier time buying another car and allowing the repo of your current one.

It's up to you to investigate these options, and in general, as I think you're finding, much of your life is up to you. Linda, I know it's frustrating to have to deal with this situation, and you certainly did not receive good legal service. However, this is your life -- if you call your law office a few times and they don't call you back, call every day. Call every hour. Physically show up. It's not impolite or unreasonable to assert your needs.

Justin Harelik is a practicing attorney in Los Angeles. To ask a question of the Bankruptcy Adviser go to the "Ask the Experts" page, and select "bankruptcy" as the topic.

Bankrate.com's corrections policy -- Posted: May 23, 2006
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