Negotiating During Reaffirmation

[mntnbnjo]

Does anyone have any experience/tips in negotiating an auto loan as a reaffirm? I purchased a vehicle in January that I wish to keep and continue making payments. My current payment is $260/mo. I owe about $9800 at a very high 27% APR and it's financed over 72 months. According to KBB and other similar guides, a FMV for the vehicle is about $5000. If I request to reaffirm, would the lender, American Credit Acceptance, be likely to work a more favorable agreement out with me?

Would this be something that I could ask the lender prior to filing?

My thoughts were, since my account is current and my account has been in good standing since the vehicle was purchased that they may be willing to reduce the debt closer to $6000 with an interest rate of 13% over 36 months. If I were to give up the vehicle, they would get about $5000 at auction. If they'd negotiate, they'd get more than at auction and with interest and payments over 36 months come out about even.

Anyone had any luck doing anything similar?

[justbroke]

I have personally never seen a vehicle reaffirmation with different terms. You may want to look at a Redemption (a/k/a a "722 Redemption") since this could actually change the value to market value.

I redeemed one of my vehicles and saved over $11K. The only problem is that these Redemption loans will be in the high teens. However, I was able to refinance that loan in 6 months of discharge for a rate in the single digits. Your mileage may vary (pun intended).

[mntnbnjo]

Thanks for the info. Something else I considered was filing Chapter 7 and then taking a loan from my retirement in the amount to cover the fair market value under redemption. Would taking out a loan for say $6000 at 4% interest possibly effect my case? As I understand, my retirement account is protected but if I withdrawal before filing then it would be considered an asset.

[justbroke]

Your Motion to Redeem Property has to list the source of the money. You wouldn't withdraw before filing since that "could" place the proceeds in jeopardy. You would file your case and near contemporaneously file your Motion to Redeem citing the source. You would pull the money from your retirement account only if the Motion to Redeem is granted.

As so, I would not personally take a loan before filing.

[MaggieMay]

There is actually a bit of a workaround with this one. I don't know what the policy is on these forums for resurrecting old threads, but for people like me who are searching for information, I thought this might be helpful.

I am in the early stages of Chapter 7. I just got my letter yesterday with my Meeting of Creditor's date, which is in about a month. I had put on my Intentions form (Schedule 108, I believe) that I intended to Redeem my car loan - that is, pay the fair market value for it in one lump sum so that I would own it outright by the time I was discharged. Then I discovered that in order to do that, you have to file a motion and there is another hearing scheduled and it's this whole big thing. (Did I mention I am filing pro se?) So I decided I was going to call my car lender and see if I could get them to agree to a redemption right off the bat, maybe make things easier. The woman I spoke with put me on hold about 20 times to speak with her superviser, but within about 1/2 hour, they basically said that what they would do is allow me to reaffirm the loan, and they would lower the payoff amount from what I currently owe down to the fair market value (about $2,000 less). That way, I could pay monthly if I needed to, or I could choose to pay it off all at once, same interest rate, etc. I discovered that in order to reaffirm your car, you ALSO need to file a motion and THAT also turns into this whole big thing, except for the fact that just because you check a box that says redeem, doesn't mean you have to redeem (or reaffirm - whatever you checked on your 108). If you check that you want to redeem or reaffirm and then you don't, what happens then is that after 30 days after the creditor's meeting, your automatic stay is lifted and the lender can repossess your car if you don't pay. It's basically a way to "stay and pay" even though they don't offer that choice anymore on the 108.

So I checked that I would redeem. The car lender is sending me all new paperwork with all the new terms; I sign it and send it back to them. I choose to do nothing in terms of redeeming/reaffirmation, which defaults me into the "stay and pay" category and as long as the new terms have been changed on my account by then, I just choose to pay monthly or pay it all off in one lump sum as I originally wanted to do. No motions needed to be filed or signed off on, etc.

It's not COMMON for this to happen - the woman I spoke with had been there for just over a year and said that I was the first person ever to call to try to negotiate terms during a bankrupcty. But it can be done. It's a bit scary to do it, but they were very nice to me and actually very easy to work with! (They'd rather lower your payoff then lose money having to repossess/auction your car, I imagine.)

Anyway, just wanted to offer my $0.02 based on my current experience.

[bcohen]

BTW, if KBB lists the "dealer retail" value at $5000, at a repo auction, it would likely sell for under $2000. If the "private party" value is $5000, the auction sale price might be closer to $3000. It doesn't hurt to negotiate, but if the lender won't play ball, then you should either take out a redemption loan for its current value, or quit paying, drive it for a couple months until it gets picked up, then buy something else. It doesn't make sense to retain almost $5000 in negative equity, especially with such a high interest rate.

[justbroke]

Thank you for posting as this is good timely information related to the thread.

Negotiating terms through the lender's attorney is very common. You may have worked it through back channels by contacting the lender themselves. In my experience it is easy to work with a vehicle lender when you are about to make them eat steel.

I would be cautious if this is really through the back channel. It's not that they could do a so-called "back door" reaffirmation, but they may "think" that there was a novation and that it's a new contract. This is why it's done through the court through the reaffirmation paperwork on Form B-2400. That's why there are hearings and motion to make sure everyone is put on notice and that anything, especially reaffirmations, are reviewed by the judge in the case of Pro Se filers.

You may have the best of both worlds. Unless it's a novation, you may have a back door reaffirmation that no one knows about and you could dump at any time. If it's a new contract... that is scary.

Or maybe I'm just over-analyzing this. despritfreya am I just being supercritical or does that read like a back-door reaffirmation in post #5?

[MaggieMay]

HI justbroke -

No, not a new contract, just new terms. Basically, just dropping the total price that I owe them. They will be sending me the paperwork next week and the change should also show up by then on my account on their website, through which I make my payment every month. So when I go to my creditor's meeting, I can just let the trustee know that even though I checked Redeem on my 108/Intentions schedule, I am actually just going to retain and pay and will, at that point, pay it off in one lump sum, with funds that I have that are exempt.

I'm hoping it works out as seamlessly as it appears it will. It was a complicated conversation over the phone, being put on hold several times, etc. but they were very willing to work with me. Like I said, probably because they know that this is much more in their favor than me just surrendering the car. They lose $2,000, but in the grand scheme of things, that's probably not a whole lot to a bank. But to me, it was worth the phone call!

[justbroke]

They lose $2,000, but in the grand scheme of things, that's probably not a whole lot to a bank. But to me, it was worth the phone call!

When we force a creditor to take back a car worth less than its value, we call it eating steel. You were able to tell the creditor that it was better eating $2,000 than eating a lot more (by going to auction). Also, what are they doing with the $2,000 they are taking out of the existing contract? Are they going to sell it to another company as a loss? Will that be in a writing? (I think it would be discharged by the bankruptcy, along with your entire liability to pay the note; see below.)

Just make sure it's not a contract novation (a new contract)... which should be invalid anyhow because that's just a back-door reaffirmation (which is not allowed).

Please let us know what the Trustee thinks. Technically, the entire debt will be discharged because you will not have done the formal reaffirmation process.

[MaggieMay]

I will absolutely keep you updated as to what happens with the car. And I think you're right that the whole thing will just be discharged in its entirety because I am going to not reaffirm/redeem. I am just going to work with the lenders themselves to renegotiate the terms so that I can get it paid off instead of having it repossessed which is best for everyone in this scenario.

My car and my house are the only debts I have and I am surrendering my house. Buying a house was the worst mistake I have ever made. American Dream, my patootie.

[despritfreya]

The car lender is sending me all new paperwork with all the new terms; I sign it and send it back to them. I choose to do nothing in terms of redeeming/reaffirmation, which defaults me into the "stay and pay" category and as long as the new terms have been changed on my account by then, I just choose to pay monthly or pay it all off in one lump sum as I originally wanted to do. No motions needed to be filed or signed off on, etc.

If by new paperwork you actually receive a reaffirmation agreement that reduces the balance, the new terms will most likely be contingent upon the approval of the reaffirmation agreement and, if such agreement is not approved by the court you do not have a deal.

If you do not want the risk of future liability an approved reaffirmation agreement brings, negotiate a loan modification (like homeowners do with mortgages). You modify the terms of the exiting loan and specifically state in the loan modification that doing so shall not be deemed a reaffirmation of the loan and that the obligation shall remain subject to the Chapter 7 discharge.

Des.

[MaggieMay]

If you do not want the risk of future liability an approved reaffirmation agreement brings, negotiate a loan modification (like homeowners do with mortgages). You modify the terms of the exiting loan and specifically state in the loan modification that doing so shall not be deemed a reaffirmation of the loan and that the obligation shall remain subject to the Chapter 7 discharge.

Des.

Thank for the info/insight, Des. In my situation, there is no risk of future liability because as soon as I get my new pay-off amount, I'm paying it off, in one lump sum.