Redemption vs. Reaffirmation: Repossession With Bankruptcy, NV

In many households, the most important asset owned is a motor vehicle. It is difficult to get around Nevada cities without a car, especially with extreme heat for several months of the year. Getting to school, work, the grocery store, medical appointments, and more all require extensive planning without a household vehicle. But when someone finances a vehicle, they typically only need to miss one payment before the lender has the right to send someone to repossess the vehicle. Even after the vehicle is taken, that person could be out other fees and a repossession deficiency balance, making their financial situation even more dire. Filing for bankruptcy can help resolve money issues when the conditions are right. But the debtor should take extra precautions to make sure that their vehicle will be protected in bankruptcy whether they file for chapter 7 or chapter 13. Read on to learn more about redemptions and reaffirmations when filing for bankruptcy in Nevada. Schedule your free phone consultation with an experienced Henderson bankruptcy lawyer today by calling 702-899-3328.

What is a Vehicle Redemption in Bankruptcy?

Vehicle redemption is an option for some bankruptcy debtors. It is a beneficial option when the debtor owes more on their car loan than the car is worth. This happens often after the vehicle has been in an accident or suffered some other type of damage. Here, a bankruptcy debtor can redeem their vehicle by paying the market value in full. The difference between that amount and the loan value is cleared by the bankruptcy filing. This also saves the debtor significant funds over time on interest payments. But this option can also be difficult to execute because most of the time, bankruptcy debtors don’t have that kind of cash at hand. However, there are companies that offer redemption funding. The lender will give the debtor funds for the lump-sum payment, and the debtor will pay that back in a set payment plan. While this loan will have a lower principal amount, these companies often have higher interest rates than traditional auto lenders. The debtor should carefully calculate all of their options to make sure a redemption would actually save them money over the course of time. If you plan on redeeming your vehicle in bankruptcy, you should mention it to your bankruptcy attorney as soon as possible in the process.

What is a Vehicle Reaffirmation in Bankruptcy?

When a debtor files for bankruptcy, it is typically a violation of their auto loan contract, even if they are up-to-date on payments. This would give the lender the right to repossess the vehicle at any time after a petition for bankruptcy has been filed. If the debtor wants to eliminate this possibility, they should sign a reaffirmation agreement for their car loan.

Generally, a debtor must be current on their car payments to be able to execute a vehicle reaffirmation in bankruptcy. Reaffirmation agreements typically look identical to the previous agreements and are simply meant to formalize the continuation of the loan. They usually have the same interest rate, end date, and other terms. The trustee must sign off on the reaffirmation agreement, which they won’t do if the loan balance is much higher than the market value or the debtor won’t be able to afford payments with their post-bankruptcy budget. The lender may be willing to be flexible on some terms, like lowering the balance.

Nevada’s Motor Vehicle Exemption

While there are methods of saving vehicles from repossession in bankruptcy, the process becomes convoluted if the vehicle in question isn’t protected by Nevada’s motor vehicle exemption. In an ideal bankruptcy case, everything the debtor owns will be protected by an applicable exemption. In chapter 7 bankruptcy, the trustee can seize unprotected assets, which are later sold to the highest bidder. Unprotected assets will increase plan payments in chapter 13 bankruptcy. A debtor can only complete a redemption or reaffirmation agreement if their vehicle is eligible for protection under the motor vehicle exemption.

Nevada bankruptcy debtors can protect up to $15,000 equity in a motor vehicle, which applies in both chapter 7 and chapter 13 cases. There is no limit for a disabled debtor who needs specialty equipment in their car. Nevada also has a $10,000 wildcard exemption. This exemption, which doubles for married couples, can protect any one of the debtor’s single assets. It can also be stacked onto an exemption that leaves a valuable asset partially exposed, such as the motor vehicle exemption. The downside here is that the debtor can’t protect any other miscellaneous assets with the wildcard exemption if they have to use it to protect excess vehicle equity.

Frequently Asked Questions

How do I determine how much my vehicle is worth?

There are numerous methods of calculating a vehicle’s value for bankruptcy purposes. But Kelley Blue Book consistently provides widely accepted estimates of vehicles’ market values.

What if I primarily use my vehicle to run my own business?

Debtors can only redeem personal use assets in bankruptcy, so a business vehicle would not qualify for this process.

Will redemption and reaffirmation payments help improve my post-bankruptcy credit score?

Keeping your car loan as is in bankruptcy will no longer help your credit, and only serves the chance to hurt your credit if you make late payments. Payments on a reaffirmed car loan can help boost your score after bankruptcy discharge. If you pay for a vehicle redemption with financing, check the terms of your agreement to see if it includes credit reporting.

Will I be left with new debt if my reaffirmed or redeemed vehicle is repossessed after bankruptcy?

A repossession deficiency is the balance remaining between a car loan and the amount it sells for at auction after a repossession. Usually, that person remains liable for a repossession deficiency. But if the vehicle was redeemed at market value, it may sell for an amount near or even above the loan balance. There is a higher risk of a repossession deficiency if a vehicle has been reaffirmed in bankruptcy.

What if I don’t want to keep my vehicle?

Surrendering your vehicle is also an option in both chapter 7 and chapter 13 bankruptcy. The debtor gives back the vehicle, and the loan with which it was associated is cleared. Many debtors can find lenders willing to work with them shortly after filing for bankruptcy, which can make this a simpler process than redemption or reaffirmation.

Can’t Decide How to Save Your Vehicle with Bankruptcy? Discuss Your Situation with an Experienced Henderson Bankruptcy Attorney.

Bankruptcy debtors are disqualified from clearing their debts by filing for bankruptcy again for several years, depending on the chapters of bankruptcy filed. Your first filing is your best shot to deal with your car loan, with redemption and reaffirmation being potential options. After reading more about them, you still may not have a conclusive answer about which route you should take. The good news is that you can talk more about which is right for you with a skilled bankruptcy professional from our Henderson legal team. See if you’re qualified and receive a competitive quote with post-filing payment options. Schedule your free consultation by phone with a skilled Henderson bankruptcy lawyer today by calling 702-899-3328.