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'Reaffirmation' of a car loan in Chapter 7 bankruptcy

Many Massachusetts families who are struggling with debt probably have at least one car payment to manage along with all of their other bills. While one option is simply to let the car be repossessed following a Chapter 7 bankruptcy, many families rely on their vehicles for transportation and need to keep them.

Therefore, the owner of the car loan may present the debtors with a "reaffirmation agreement." The important thing that debtors need to remember is that once they sign the agreement, they are bound to pay off the debt without regard to their bankruptcy. In exchange for re-committing to paying off the debt, the debtor gets to keep the vehicle.

Provided that a debtor can afford to sign such an agreement, doing so might make sense. The risk, however, is that if the debtor falls upon financial hard times again, then he or she may both lose the vehicle and be forced to pay the balance of the debt in full, even if that means the seizure of a checking account or the imposition of a wage garnishment.

While some lenders may be willing to re-negotiate the terms of the car loan as part of the reaffirmation process, one should not count on that. For one, the law offers special protections to car lenders, making it more difficult for debtors to insist upon better loan terms. Furthermore, many banks or other car lenders simply choose not to bother with negotiating car loans, preferring instead to use a "take it or leave it" approach.

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