Almost everyone who files Chapter 7 bankruptcy wants to also begin the process for reaffirming their car loan. When reaffirming a car loan, you sign an document whereby you agree to treat the car debt as if you had never filed bankruptcy against it. In some cases, this can be a bad idea.
In Northwest Georgia, it is not uncommon to see a client come into my office with a car note that has an interest rate of thirty percent or higher. Even though many of the buy-here-pay-here auto dealers have gone out of business in Northwest Georgia, there are still enough operations around Northwest Georgia that continue to sell used cars at sky high interest rates. Reaffirming a car note with a sky high interest rate is a bad move for many reasons.
1. A person can file chapter 7 only once every eight years. When you reaffirm the debt, what are you going to do down the road when that car breaks down and you still owe thousands of dollars on it because of the sky high interest rate? The purpose of Chapter 7 is to give you a fresh start. How are you getting a fresh start if you agree to be liable for a large balance on a car loan with thirty percent interest?
2. If you have a car with a high rate that you absolutely must keep, Chapter 13 is a better option than Chapter 7 bankruptcy. In a Chapter 13, you can lower the interest rate to around six percent. The amount of money you can save over the long term can greatly outweigh the cost of the case. Also, if you purchased car more than 2.5 years before filing the case, you only have to pay back the value of the car and not the entire balance owed. Once again, the amount of savings can greatly exceed the cost of the entire case.
It is also important note that in Northwest Georgia, your bankruptcy attorney must sign the reaffirmation agreement stating that it is in your best interest. If the finance charges are sky high, your bankruptcy attorney will not be able to sign off on it.