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Phoenix Vehicle Reaffirmation Attorney

Call a Phoenix bankruptcy lawyer at Hilltop Law Firm at (602) 466-9631 about keeping your personal vehicle when you file for bankruptcy.

Reaffirmation Lawyer in Phoenix Helps with the Bankruptcy Process

Most people who live in the greater Phoenix metropolitan area need a car to get around. In addition to commuting to work, residents use their cars to visit the Grand Canyon, explore Camelback Mountain, take in a Diamondbacks game at Chase Field, and more.

Vehicle reaffirmation is a type of agreement that can help you keep your vehicle when you file for bankruptcy. It can also allow you to modify the loan terms and negotiate lower interest rates.

Navigating the process of vehicle reaffirmation in Arizona can be difficult, but understanding the key elements will help simplify the process.

If you’re considering vehicle reaffirmation, you’ll want to speak with an experienced Phoenix vehicle reaffirmation attorney to find out if this choice is right for you.

Cy Hainey at Hilltop Law Firm is a bankruptcy attorney who’s been helping people in Arizona overcome their financial challenges for over 10 years. We provide legal and financial assistance to help you eliminate debt and get back on your feet again.

Call (602) 466-9631 to schedule a free consultation with a Hilltop Law Firm lawyer today.

What is Vehicle Reaffirmation?

Vehicle reaffirmation is a legal agreement made during a bankruptcy case where an individual decides to keep a vehicle and continue paying the loan as agreed. In Arizona, this means you’re choosing to exclude your car from the bankruptcy discharge, which removes your obligation to pay certain debts. By reaffirming the loan, you and the lender agree that you will remain responsible for the vehicle’s debt as if no bankruptcy petition had ever been filed.

This process requires filing a Reaffirmation Agreement with the bankruptcy court. The agreement outlines the remaining loan terms and asserts your commitment to continue making payments. Reaffirming a vehicle loan means you cannot have the debt discharged in bankruptcy if you fail to make payments.

How Does Vehicle Reaffirmation Work?

When you file for bankruptcy, the law requires that you file a document entitled “Debtor’s Statement of Intention.” The purpose of this document is to state your intentions regarding your secured debts, including car loans. You have the option to surrender the property (voluntary repossession), redeem the property (pay off the loan), or reaffirm your obligation to pay the debt to the bank or finance company. If you choose the third option for your vehicle, you need to enter a vehicle reaffirmation agreement and continue making your car payments. This makes it possible to avoid repossession of your vehicle.

What Is Arizona Law on Vehicle Reaffirmation?

Under the federal Bankruptcy Code, debtors are required to submit a vehicle reaffirmation agreement to the bankruptcy court for approval by the judge. In Arizona, however, bankruptcy judges usually do not approve these agreements — the reason is to avoid potential negative consequences.

If the court approves the agreement and you later default on your car loan, the bank or finance company could repossess your vehicle and sue you for the remaining balance after the vehicle is sold. On the other hand, if the court does not approve the agreement, the bank is technically entitled to repossess the vehicle, even if you are current on your payments. As a solution to this dilemma, instead of approving the vehicle affirmation agreement, the bankruptcy court may enter an order informing the creditor that:

  • You have complied with the requirements of the Bankruptcy Code; and
  • As long as you remain current on your monthly payments, the creditor may not repossess the vehicle.

With this order in place, if you are unable to make your car payments at any point in the future, the bank will be entitled to repossess the vehicle, but it will not be permitted to attempt to collect any remaining balance on the loan.

What Are the Benefits and Risks of Vehicle Reaffirmation?

Reaffirming a vehicle loan in Arizona also offers several benefits, including maintaining possession of your car. If the vehicle is essential for your daily life, keeping it can be crucial.

When you continue making timely payments on a reaffirmed loan, it will help rebuild your credit score; each on-time payment is reported to the credit bureaus, contributing positively to your credit history. This is especially beneficial if you have no other lines of credit after filing for bankruptcy.

If you’ve negotiated better loan terms with your lender as part of the reaffirmation process, such as a reduced interest rate or a lower monthly payment, this will ease your financial burden.

Although there are clear benefits to reaffirming your vehicle loan in Arizona, it also carries potential risks. If you default on the reaffirmed loan after bankruptcy, the lender may repossess the vehicle. Since you have agreed to remain liable for the debt, the lender can also sue you for any deficiency balance — the difference between the loan amount due and the value of the repossessed vehicle.

Another risk involves the vehicle’s depreciation. Cars lose value over time, and if the loan extends far into the future, you may end up paying significantly more than the vehicle is worth.

What Is the Vehicle Reaffirmation Process?

  • If you choose the vehicle reaffirmation option, the first step is to enter into an agreement with the bank or finance company. The agreement must state whether this will create undue hardship.
  • If it creates undue hardship, the judge may set a hearing to consider approval of the vehicle reaffirmation agreement.
  • In Arizona, the judge will likely deny the reaffirmation agreement.
  • If the judge denies the agreement, the court may issue an order prohibiting the bank or finance company from repossessing your vehicle as long as you make the monthly payments.
  • After the order is entered, if you are unable to stay current with your monthly payments, the bank or finance company may repossess your vehicle, but you will owe nothing further on the loan.

What to Know About Vehicle Reaffirmation and Bankruptcy in Phoenix?

Bankruptcy is a legal process designed to help individuals and businesses eliminate or repay their debts under the protection of the federal bankruptcy court. In Arizona, the most common forms of consumer bankruptcy are Chapter 7 and Chapter 13.

Chapter 7 bankruptcy, also known as liquidation bankruptcy, allows debtors to discharge most of their debts by liquidating non-exempt assets. During a Chapter 7 bankruptcy in Arizona, reaffirming your vehicle loan can be a strategic move to retain your car.

Chapter 13 bankruptcy is a reorganization bankruptcy, where a debtor proposes a repayment plan to make installments to creditors over three to five years. Filing for bankruptcy can offer a fresh start for those overwhelmed by debt, but it comes with consequences, such as the impact on your credit score.

In Chapter 13 bankruptcy, reaffirmation of vehicle loans operates differently than in Chapter 7. Instead of signing a reaffirmation agreement, you may include your car loan in your Chapter 13 repayment plan. This can potentially lower your payments by extending them over the life of the bankruptcy plan or by reducing the principal or interest rate if your loan qualifies.

This process, known as a cramdown, is only possible if you owe more on the loan than the vehicle’s current value and you’ve had the loan for a specific period of time. The court may approve a new amount reflecting the car’s actual value, which you’ll repay as part of your bankruptcy plan.

By including your vehicle loan in the Chapter 13 plan, you can avoid repossession as long as payments are made on time. Once you complete the repayment plan, the remaining loan balance may be discharged, depending on how your case is structured.

Answering Your Questions About Phoenix Bankruptcy Laws

Our experienced Phoenix bankruptcy attorney will assist you with every aspect of bankruptcy law in Arizona. For sound legal guidance regarding vehicle reaffirmation and all other matters related to bankruptcy in Arizona, contact a lawyer at Hilltop Law Firm by calling (602) 466-9631 today.

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