Many people who file Chapter 7 bankruptcy in New York are car owners. More often than not, by the time they file, the cars are worth less than the remaining balance on the loans they used to finance them. However, because the car secures the loan, it gets a different treatment in Chapter 7. The debtor can choose to surrender the vehicle to the lender and discharge the rest of the debt, reaffirm the loan as though the bankruptcy didn’t happen, or redeem the vehicle for its remaining market value. The thing is, people in Chapter 7 rarely have the money on hand to pay off the auto loan at once, but they have the option of obtaining financing via a “redemption lender.” The question is whether, aside from the benefits of the other options for handling the vehicle, it’s worthwhile to borrow more money to pay for the car.
The first thing to know about redemption loans is that they have very high interest rates, up to 25 percent even. This is a solid reason not to use a redemption loan to keep a vehicle, but debtors who have decent credit after bankruptcy might be able to refinance the redemption loan at a more affordable rate. It should be noted that the loan won’t be dischargeable in Chapter 7 for eight years after the previous filing, which means the debtor should have a steady income to be able to keep current on the loan.
That said, sometimes the interest rates aren’t always bad. Some debtors can end up paying less than they would under a reaffirmation agreement, and sometimes the monthly payments are less as well. When redemption loans save money in the long run and allow debtors to keep their vehicles, then they’re worthwhile.
The bankruptcy code gives debtors options for keeping their vehicles when they file in Chapter 7, but deciding which course of action is best requires an experienced New York bankruptcy attorney.
For more questions about cars in bankruptcy, redemption, surrender, reaffirmation, the automatic stay, effective strategies for dealing with foreclosure, and protecting your assets in bankruptcy please feel free to contact experienced Brooklyn bankruptcy law firm Bruce Weiner for a free initial consultation.
