Car Question

[Badgerz]

Bear with me folks. We have our very first meeting with an attorney tomorrow. We are anxious, a little nervous, not sure what's going to happen etc. That's all fine and should be normal I presume.

We're in the middle of making sure we have everything in line at the moment and there only seems to be one question left, the car. We have a 2002 Mazda Tribute. We owe about 2k more than it's worth. What's the best thing to do as far as the car is concerned. The payments on it are current and we can't afford to lose it. I don't really understand the reaffirmation process or if it's even something we want to consider.

Could someone please spell it out in a nutshell? I did a few searches but I'd like to see an answer pertaining directly to our case as far as the car is concerned. I know the topic has been discussed a thousand times but my heads pounding and I could really just use a straight forward answer.

Much appreciated.

[StaciMM]

As long as you keep the payments up to date on it, you should be fine. I've heard that the new laws require you to reaffirm-ask the attorney about that when you see him. Generally, if you don't reaffirm but keep the payments current, the lender is happy as they don't want it back.

Since you are slightly upside down, you don't an equity issue. And, if the payments are something you can handle then you should be fine with it.

[Badgerz]

Thanks Staci. Just in case it comes up as a choice and reaffirmation isn't required, which is better, reaffirm or just keep paying on it as is? I know I should just wait and ask the attorney but I trust you all more than the attorney already and I haven't even met him/her. Of course I haven't met any of you either but you're at least you're on my side of the field so to speak.

[SinkingFast]

I don't know about the car issue. We're just starting too. But Staci is very knowledgeable and I'd bet she nailed it for you about the car.

Don't worry about the meeting with the attny. They are all different. Want you to bring different things with you. Ask you different questions. Handle the meetings different ways.

One of ours was a phone consult. One was in the attny's office across his desk. One was more formal, in the firm's conference room.

We have another consult coming up on Monday. That attny sent a huge packet of papers for us to have filled out to return when we come for the consult. Plus a check list of things to bring along as well. And he only allows 30 minutes for the appt. So we shall see. Upside to the packet is I've learned a lot filling out the paperwork. It's basically the same stuff they will file for BK only in slightly different format.

Have a list of questions written down. You may be on info overload and it's easy to forget during the meeting. The attny will mention something and your mind will just go with the flow. With the list, you won't forget to ask about things he/she may not have mentioned.

[StaciMM]

If you don't reaffirm, then you are not responsible for the payment. That doesn't mean you get the car for free of course, since the lien holder still owns it. But as long as you make payments, you should be ok. If at any point you fall behind or stop making payments-the lender will likely take it but you still owe nothing. If you have a long time remaining on the loan-this is good. How do you know what is going to happen in 1 year, or 2? If you need to give it back-you can.

On the other hand, it will not report your payment history to the credit bureaus and you may not receive statements. You'll need to keep good records of your payments. If you reaffirm, everything w/ the car loan should go as it did before the BK. You get statements, they report payment history. If you fall behind, they can report late payments and if they repo or you give it back, you owe in deficit balance.

My theory is that if you're near the end of the loan anyhow, might as well reaffirm. If you do reaffirm and you're upside down, make sure to carry gap coverage. If not, and your car gets totalled, the insurance will only pay what its worth and you'll owe the difference. (Speaking from personal history-wish I knew what gap insurance was 6 years ago! I really can't complain-the car I totalled in '03 was so bad, they couldn't tell what dents, etc. were there before the wreck so valued it at the highest possible. Still left me owing $4000 on a 3 year old vehicle.)

[Badgerz]

But as long as you make payments, you should be ok. If at any point you fall behind or stop making payments-the lender will likely take it but you still owe nothing.

That's interesting and something I did not know. I plan on us driving this vehicle until it falls apart but, just out of curiosity, let's say we keep paying on it for a couple of years and want to sell it. I would assume we would have to pay the remainder of what was agreed upon to clear the title correct?

If that seems like a simple question please excuse me. My thoughts are a bit fuzzy this evening.

[StaciMM]

You're right-and it is not an odd question. Alot of people think the opposite-that since the debt is discharged then they own it after BK free & clear.

[Badgerz]

Thanks again. One last thing, I thought I read somewhere that if you reaffirm, the amount you owe is reduced to the actual value of the vehicle. Is there any truth to that?

[SinkingFast]

Part of the new law for Ch 13 affects auto loans where people are upside down.

Look on page 2 in this thread:

http://www.bankruptcyforum.com/t6002...ble-works.html

There's a simplified explanation there. Prolly won't help you much on a $2K difference.

[StaciMM]

For a ch. 7, no. Though you could possibly redeem for the amount it is worth. If you are only upside down by $2,000, the costs of getting a redemption loan (fee to your attorney, fee to the loan co.) and the higher APR would probably prevent that from saving you any money.

[Badgerz]

Ah, I see now. The redemption would be with another lender most likely at 18%-21% interest. That makes sense.

[SinkingFast]

OK,.......... Will somebody explain what a redemption loan is to me??

I've seen redemption loans mentioned on here but don't know what they are.

Nevermind,......... I found a thread that discussed it and mentioned 722redemption.com

[Badgerz]

Sinking, what's your opinion of the loans? Just curious.

[StaciMM]

If you're significantly upside down, the redemption loan can be a great thing. The Apr will be in the 24-26% range, and the fees to get the loan somewhere around $600-1000. (Depending on what your attorney charges, the fees are in the loan though so nothing out of pocket.) Another nice thing is the payment tends to be lower and for more payments than the original payments remaining, which helps someone on a tight budget.

Personally, we surrendered 2 vehicles and bought a 2002 Taurus that had been a lease trade in thru 722's replacement program. No regrets. Extenuating circumstances, though, include the fact that we decided to downsize to 1 vehicle (I work days, Dh works nights) and neither of the vehicles we had would have been a good choice to keep. 1 was a Dodge truck w/ V8 engine-bad gas mileage, and it needed tires replaced & a windshield. The other was a Galant, but had high mileage, potential brake issues, and had a balloon payment due in 2 years. Aside from the fact that it was worth MUCH less than we owed, we would have been foolish to keep paying on it as we would have had to replace it before the balloon was due anyhow. (Redemption was not an option for us as we had no attorney and 722 can't give legal advice and are not the ones to haggle with the creditor-so they don't do redemptions for pro se filers.) Anyhow-our logic was to get a reliable vehicle that we can drive fora long time.


EDITED because the $250-300 payment tendency is based on replacemenets thru 722, not redemption.

[StaciMM]

Redemption Example #1:

You have 36 months left on a vehicle, paying $456.33/mo @ 6% APR. Presently, you owe $15,000. In the end, you'd pay $16,427.88.

If you're in a ch. 7 and its only worth $10,000-you get a redemption loan for $10,000 + $1,000 in fees/setup, pay it back over 4 1/2 years at 25.9% APR. Payment would be $338.66, so this scenario has you paying back a total of $18,287.82. If your budget was really tight on the $456, this could be a way to lower your payment. If you're able to pay more, of course, you pay it off sooner.

Example #2 (similar to a vehicle we surrendered):

You owe $17,000 on a vehicle w/ 13% interest and 42 payments remaining. In the end, would pay $21,250.

Its only worth $10,500. You get a redemption loan for a total of $11,500, keep the same # of payments, 25.9% APR, and pay $411 per month for 42 months. End result is $17,260. Saves pretty much $4,000, and lowers the monthly payment by almost $100. And, if you can pay extra, save even more on interest.

It can also help if you are behind on the vehicle, but can't catch up on those missed payments. The redemption is based on the fair market value of the vehicle, not what you owe, so its not important that you're not current. The redemption must be completed (filed with the court before BK is discharged).