Post Chapter 7 Issue with Car loan

[morecowbell]

What is the name of your state? Massachusetts

My wife and I filed Ch.7 last year, before the legal changes went into effect. Our bankruptcy was discharged in September of 2005. We have an auto loan that we intended to reaffirm as part of the process. I recently discovered that due to an error on the part of the lender (at least that's what our lawyer says), the reaffirmation paperwork was never processed by the lender and never included in the filing. I have been making timely payments on the loan since we emerged from bankruptcy last year. However, since the lender never finished the process for filing the reaffirmation, the account has remained in their bankruptcy department and they have not been reporting any activity to the credit bureaus since March of 2005.

In speaking to the lender they say my options are as follows:

1. Reopen the bankruptcy case (which will of course cost money) and amend the filing to include the reaffirmation of the car loan. If I can provide some kind of proof that they screwed up, they will handle the costs to do this
2. Leave things "as is" and when the loan is paid off, it will show up as discharged in the bankruptcy on my credit report. Now this option obviously makes no sense. Why would I pay off the loan if they are going to report it as a ch. 7 discharged item?

Here's the interesting part. We are very much "upside down" on this loan. We owe about $4500 more on the loan than the car is actually worth. My lawyer said that since the reaffirmation agreement was not included in the filing, if I simply stop paying on it and tell the lender that they can have the car, they have no choice but to come get it and report the loan as discharged in the bankruptcy. He said that if we are upside-down on the loan, the last thing we want to do is reaffirm. In a sense, this could be a blessing in disguise that allows us to get out from under one more bad loan.

Right now this loan shows as paid as agreed on our credit reports. But as I mentioned, no payment activity has been reported by the lender for over a year. As I understand it, that in and of itself can be viewed by lenders as a negative. If I were to go ahead and stop paying this loan, and let it be reported as discharged in the bankruptcy, can someone give me a ballpark idea of how much of an additional negative impact this might have on our FICO scores? They already suck anyway (mid 500's) so I'm thinking I might be better off just giving up on this loan and starting over.

Any thoughts on this are appreciated.

Thanks!

 

[Johnlaurajake]

True...

If you truly didn't reaffirm you can give the car back and the credit reports will continue to show as included in Bankrupcy. (I am not a professional just know from experience.)

You should go to www.creditboards.com

I received a lot of VERY helpful advice from folks there.. There is not only a bankrupcy forum but there is an auto financing forum that will be helpful if you are looking for other opportunities.

 

[morecowbell]

Thanks for the info! I am going to check out that CreditBoards site. Probably repost this there just to see if anyone else knows of any wrinkles I should be aware of.

 

[Ladynred]

1. Reopen the bankruptcy case (which will of course cost money) and amend the filing to include the reaffirmation of the car loan. If I can provide some kind of proof that they screwed up, they will handle the costs to do this

It is doubtful that the court would agree to re-open your case for this. Reaffirmations must be completed and recorded by the court before your discharge. Since reaffirmations are VOLUNTARY and you clearly are allowed the 'walk-thru' under state law, there's no reason to sweat this. Even if the loan had been reaffirmed, it would STILL be listed as 'included in bankrutpcy' (reaffirmation does NOT exclude the debt from the BK, it only excludes it from DISCHARGE).

2. Leave things "as is" and when the loan is paid off, it will show up as discharged in the bankruptcy on my credit report. Now this option obviously makes no sense. Why would I pay off the loan if they are going to report it as a ch. 7 discharged item?

It's already listed as 'included in bankruptcy', or should be. Why would you pay off the loan ?? People do so because they want to keep the car. Since you're upside down on it.. you can safely walk away - give it back to the bank. They cannot report it as a repo and they cannot come after you for any money - the debt was discharged. There should be no negative impact on your FICO scores.. the BK itself does way more damage.

 

[morecowbell]

It is doubtful that the court would agree to re-open your case for this. Reaffirmations must be completed and recorded by the court before your discharge. Since reaffirmations are VOLUNTARY and you clearly are allowed the 'walk-thru' under state law, there's no reason to sweat this. Even if the loan had been reaffirmed, it would STILL be listed as 'included in bankrutpcy' (reaffirmation does NOT exclude the debt from the BK, it only excludes it from DISCHARGE).

Interesting. If this is indeed the case, then why don't any of our other reaffirmed debts show up on my credit report as IIB? (Such as our mortgage and other car loan), they all show as paid current, all is well, etc. No mention of the BK. Is that simply up to the individual creditor? Right now the only accounts that show as IIB on my reports from all three CRA's are the ones that were actually discharged.

It's already listed as 'included in bankruptcy', or should be. Why would you pay off the loan ?? People do so because they want to keep the car. Since you're upside down on it.. you can safely walk away - give it back to the bank. They cannot report it as a repo and they cannot come after you for any money - the debt was discharged. There should be no negative impact on your FICO scores.. the BK itself does way more damage.

So what's the best strategy here? Just stop paying and use the car as long as I can, and wait for them to come get it? Or should I just proactively call them and say "come and get it"? Is there any advantage to either approach (in terms of how it shows up on the credit reports)?

Thanks

 

[moburkes]

I an mot a lawyer

Interesting. If this is indeed the case, then why don't any of our other reaffirmed debts show up on my credit report as IIB? (Such as our mortgage and other car loan), they all show as paid current, all is well, etc. No mention of the BK. Is that simply up to the individual creditor? Right now the only accounts that show as IIB on my reports from all three CRA's are the ones that were actually discharged.



So what's the best strategy here? Just stop paying and use the car as long as I can, and wait for them to come get it? Or should I just proactively call them and say "come and get it"? Is there any advantage to either approach (in terms of how it shows up on the credit reports)?

Thanks

Drive it until they take it away! That's my non-legal advice!

 

[morecowbell]

Drive it until they take it away! That's my non-legal advice!

I like it!

 

[Ladynred]

If this is indeed the case, then why don't any of our other reaffirmed debts show up on my credit report as IIB?

It is entirely up to the creditor how they report the debt.

Just stop paying and use the car as long as I can, and wait for them to come get it?

You could do that.

Or should I just proactively call them and say "come and get it"? Is there any advantage to either approach (in terms of how it shows up on the credit reports)?

They can NOT report anything negative on a discharged debt, so it will make ZERO difference on your reports. If they report a repo or post a negative entry, they are violating the permanent injunction of your discharge.

Whether or not you call them or wait.. is entirely up to you.