Ch. 7 Auto Loan Question

[buddha]

Hello. Firstly, this forum was so helpful when I filed for bankruptcy 2 years ago.

My question relates to my car loan. When my debts were discharged I did not re-affirm my auto loan, however I kept making the payments because I planned to pay off the car and keep it. At this point there is still 4,000 dollars "owed" on the loan. I got in a bad car accident 2 days ago and cannot afford to fix the car. It is not drive-able and my insurance company is totaling the car.

My question is, do I have to pay the bank back any money towards the remainder of the loan? I know my car loan was not re-affirmed and my credit history shows the car loan as discharged. However, if I stop paying and they come looking for the car they will never find it. Also, if I call them and tell them their car is totaled and to pick it up at the mechanic shop, I am worried they will try to get money out of me somehow.

Any help would be greatly appreciated!!!

[btbeme]

You are a perfect example of why it is almost always a good idea to NOT reaffirm a car or mortgage. Your personal liability has been discharged; the existing lien is against the vehicle. However, you could likely expect that the lender will ask for the insurance check for the vehicle's value.

[buddha]

By asking for the insurance check wouldn't the bank be violating the bankruptcy since I technically owe them nothing?

[kornellred]

If you do not have the title to the vehicle in your possession, the vehicle does not belong to you. Period. You do not get to make decisions - you only get to respond to the demands of the owner.

[buddha]

If you do not have the title to the vehicle in your possession, the vehicle does not belong to you. Period. You do not get to make decisions - you only get to respond to the demands of the owner.

I'm not sure that I understand what you mean. My question is, how can the bank ask for money that was discharged in the bankruptcy? It was my understanding that it was the bank that took the risk by not taking the car back when the loan was not re-affirmed.

[kornellred]

Your car loan was not included in your Chapter 7. If it was, it would have been repossessed. Do you actually think that you can file for Chapter 7, get an auto loan discharged, and keep the car? Car loans are secured - the vehicle is collateral.

[bcohen]

Your car loan was not included in your Chapter 7. If it was, it would have been repossessed. Do you actually think that you can file for Chapter 7, get an auto loan discharged, and keep the car? Car loans are secured - the vehicle is collateral.

What??! Not all lenders will reposess simply because the person files for bankruptcy; many will not as long as all payments are made on time. That is known as a "ride through", and that is what OP was doing--not trying to keep a car for free while not paying!

In any case, although your personal liability for the car loan (and for any deficiency balance) have been discharged, the bank still holds title to the car--and will need to receive the insurance payout in order to release their lien so that the car may be junked.

[kornellred]

The insurance company will pay the loss payee of record for damages to the vehicle. The loss payee is the entity that lost the value of the vehicle when it was damaged. They can take any steps necessary to recover their loss if the insurance company check does not cover it. What you must really be asking is if the accident gets you off the hook for any amount the loss payee might ask for in excess of the amount they will received from the insurance company.

I say no, but I could be wrong. Your auto loan was not discharged if you kept the vehicle and you were still paying for it, no matter what you think.

[mountanddo]

Can you even file bankruptcy without including all your debts? What you are suggesting is that the OP is not telling the entire truth. Nevertheless I can't see the bankruptcy court allowing someone to discharge a debt and then profiting from that but I've read stranger things since I've been a member on this board! LOL

[justbroke]

The real deal is this. If your insurer has a named lienholder, the check will probably be made out in both your name "and" the lienholder's name. That makes it difficult to cash that check. If they issue the check to you, then you may be able to keep it. I would go back to my bankruptcy attorney.

The real question is whether the lender (lienholder) is entitled to the proceeds of the insurance check. If they are not named with an insured interest, that would be a gray area. This is why I suggest going back to your attorney. There is no question if the lienholder is actually named on your insurance policy as such. Their "insurad" interest was not discharged in the bankruptcy.

So let's assume that the lienholder is named as a such. If the check does not cover the the balance of the loan, then it is still discharged! The lienholder (lender/creditor) would NOT be allowed to attempt to collect the difference (gap) at all! Attempting to collect from the debtor that discharged the debt would be a violation of the permanent discharge injunction.

[kornellred]

Looks like I stuck my foot in my mouth a little bit in my second response, because the last sentence is just not true at all. When a debtor receives a discharge, it is for all debts that were listed in the petition and were dischargeable to begin with. So, if an auto loan is listed, and the loan was not reaffirmed, then it is discharged by default. And that means that no action can be taken by the creditor against the debtor. The debt no longer exists. Simple.

However, debtors are usually not allowed to keep financed vehicles in a Chapter 7 without reaffirmation of the debt. It is supposed to be the procedure which makes it possible for a debtor to keep the vehicle. It sure seems as though keeping a financed vehicle in a Chapter 7 without having reaffirmed the debt is an anomaly, but apparently it happens. Debt reaffirmation means agreeing to pay the entire amount owed, even if the vehicle is useless. So if you didn't reaffirm, and you managed to keep the vehicle, and you total the vehicle, you are no longer required by law to be a nice person and keep making the payments. The lien holder loses, because there is no point in re-possessing a useless vehicle.

[JackBondLove]

You have basically been going on with a rent-to-own agreement with the lienholder as rentee, with the ability of any of the parties to unilaterally dissolve at any time - and with the requirement that you must keep general collision/comprehensive insurance on the vehicle, and with any liability to the lienholder/rentee arising out of an accident indemnified by the renter. Since you are in the legal situation of having indemnified the lienholder/rentee, any loss - but only up to the value of the car - would be a new debt. (I'm sure that lienholders not getting a reaffirmation have some sort of legal document changing the relationship to that of a rentee-rentor, explaining this that the debtor/renter must sign before the discharge.)

Simply put, you owe the lienholder/rentee the car in proper condition, or its value, which is what the insurance company now owes you - and is contractually obligated to pay the lienholder/rentee. The overage of the note is meaningless because you don't owe anything to the lienholder anymore - i.e., there is no more note, only a rental agreement that can be ended at any time - as that has been discharged in BK.

[justbroke]

Simply put, you owe the lienholder/rentee the car in proper condition, or its value, which is what the insurance company now owes you - and is contractually obligated to pay the lienholder/rentee.

I don't believe this to be true at all. This is specifically why some lenders repossess vehicles that are not reaffirmed. They assume the liability on the collateral if they don't repossess or force a reaffirmation! You can't magically create a "new" contractual obligation out of nothing. The insurance company is beholden to the "insured". If the insured did not list the lienholder (creditor) as a loss payee, then that doesn't magically make the debtor -- who discharged the debt -- now somehow beholden again to the lienholder.

This is a lesson for lienholders in bankruptcies where a debt is not reaffirmed!

The overage of the note is meaningless because you don't owe anything to the lienholder anymore - i.e., there is no more note, only a rental agreement that can be ended at any time - as that has been discharged in BK.

Again, there is no rental agreement. You can't create a new contract. What has only changed is that the promissory note portion of the Installment Agreement (the installment part) has been rendered unenforceable. However, the "security interest" (collateral part) remains in full force and effect.

I can tell you that there is nothing signed when one does not reaffirm a debt. In a discharge situation without reaffirmation, the smart lender will make sure that they are listed as a loss payee (period). Otherwise, they should repossess the collateral.

[idainc]

I'm in a ride through situation resulting from a CH7 discharged car loan. I've been paying on this for the last 20 months on time every month and I've got about 18 mnths to go.

The thought occured to me - and I've never read of anyone trying this. I can offer the bank the approximate wholesale cost of the car right now in exchange for the title. It would be about $3k less than the total of the outstanding payments and I'd be free of them and they'd be free of me. Seems ot make sense since I can wlak away from this at any time and they'd be in the same situation. AT the time of the filing, I asked if they'd drop the value of the loan and they refused.

Bascally they can get it off the books nw in lieu of taking a potentially bigger loss later on.

Who should I make the offer to ?

[justbroke]

I don't know of any motor vehicle lender that would take less than the value of the vehicle. Especially when you are current and have been current.