When you take out a secured loan, you are required to use something of value as collateral for the loan. It may be your car, home, or other valuable personal property. The lender holds the title or deed to the collateral or he or she places a lien on the collateral until you pay the loan balance. If you default on the loan, the lender has the right to take possession of the collateral and use the proceeds of the sale of the collateral to fulfill the outstanding debt.
Keeping Your Car In Bankruptcy
When you take out a loan to buy a car, you give the lender a security interest in your car otherwise referred to as a secured loan. If you stop making payments on the car, the lender can take the car to satisfy the debt. If you decide to file for bankruptcy, you may elect to continue making payments on the car if you can show the court that the car is necessary, the payment is reasonable and that keeping it will not pose an undue hardship to your household. When you reaffirm a car loan in bankruptcy, you sign an agreement with the lender that you will continue to pay for the car as if you had not filed bankruptcy in exchange for keeping the vehicle.
Defaulting Following Reaffirmation
Reaffirming a car loan means that you are agreeing to be responsible for the debt. Once you receive your discharge, you are bound by the agreement unless you rescind it before bankruptcy discharge. The effect of reaffirmation is that you can keep your car as long as you keep making the payments. However, if you default on the payments, the lender can repossess the car, sell it at auction, and hold you responsible for the remaining balance due under the loan agreement.
Contact a Peoria Illinois Bankruptcy Lawyer for Help
If you are considering filing for bankruptcy protection, and would like more information regarding keeping your home or vehicle, contact the Law Offfices of Charles E. Covey for help. Charles will help you with a strategy that fits your circumstances, which may or may not include filing for Chapter 7 or Chapter 13 bankruptcy. Contact our offices today for an affordable solution to your difficult financial situation.