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Tips for Getting a Great Reaffirmation Agreement in Bankruptcy

Would you like to negotiate a reaffirmation agreement in Chapter 7 bankruptcy so you can keep secured personal property for less? Below are my tips for getting a great deal when reaffirming car loans and debts for jewelry, furniture, major appliances, and electronics.

What Is a Reaffirmation Agreement in Bankruptcy?

Most folks who file Chapter 7 bankruptcy have secured personal property debts they want to reaffirm. (Personal property is anything that is not real estate.) Secured debts are those for which you pledge an item of property to guarantee payment of the debt. If you don’t make the loan payments, the creditor can repossess the property. Common examples include car loans, and loans money you owe for the purchase of furniture, large appliances, expensive electronics, and jewelry. (Here’s a more detailed definition of what secured debts are and how they work.)

In bankruptcy, if you have a debt that is secured by personal property you must either give up the property, redeem the property (pay market value for it), or reaffirm the debt (that is, agree to be responsible for the debt even after you get the bankruptcy discharge).  (Learn more about options for dealing with secured debts in bankruptcy.)

Reaffirming a debt is not to be taken lightly, so be sure you understand what it is and why you might want to do it.  You can learn about the pros, cons, procedures, and reasons for making a reaffirmation agreement here.

If you decide you do want to reaffirm a debt in Chapter 7 bankruptcy, you may be able to get a better deal by negotiating with the creditor. Here’s how.

Negotiating the Reaffirmation of a Car Loan

When you reaffirm a car loan in order to keep your car, you might be able to get loan terms than the ones you currently have. First, you need to know what kind of loan you have. Money you owe on a motor vehicle will fall into one of two categories: “purchase money” loan or “non-purchase money loan.” If you have a purchase money loan, you have a slim chance to get only a slightly better deal than you already have. If you have a non-purchase money loan, your chances of saving a bucket of money are quite good.

Purchase Money Car Loans

With a purchase money car loan, the debt is the original financing you obtained when you first bought the vehicle (you used the loan money to buy the car). Typical purchase money lenders include Ford Motor Credit, GMAC, Toyota Motor Credit, etc. It doesn’t matter if you bought your vehicle new or used – the loan is a purchase money loan if the vehicle was new to you, and the same, original financing is still in place.

Lenders holding a purchase money loan rarely offer you better terms in a reaffirmation agreement.

  • Loans offered by vehicle manufacturers. If the lender is connected to a vehicle manufacturer like GM or Ford, I find they will not budge. You can ask, but it will probably tell you to keep the original contract terms or else surrender the vehicle.
  • Major bank loans. Major banks rarely drop the amount you owe, but sometimes will agree to cut the interest rate which will, in turn, reduce your payment amount. According to recent experiences, if you have a vehicle loan with Wells Fargo Bank you stand a great chance of getting a decent reduction in the rate of interest. Other major banks may give you little or no relief.
  • Loans by small banks. The smaller the bank, the better your chances are to save money (the exception being Wells Fargo).

Keep in mind with all of these lenders: It costs nothing to ask.

Non-Purchase Money Vehicle Loans

Any other vehicle loan is a non-purchase money loan.  A person might take out a non-purchase money loan if he or she owns the vehicle “free and clear” (meaning the person doesn’t have a car loan). If you need fast money, you can take a loan out against your car. Typical non-purchase money lenders include companies that offer “title loans,” credit unions, small finance companies, and loan sharks.

Lenders with a non-purchase money agreement are likely to give you a good deal. This is because such loans are usually on older vehicles. The older the car and the higher the mileage, the better will be your chance to save a lot of money. It just makes sense. The lenders know they can’t sell an old car for very much money.

What to Ask For

When making an offer on a reaffirmation agreement, ask the lender to reduce the loan balance and the interest rate. Remember, this is a negotiation. You can expect the lender to come back with a counter offer. So, make your starting offer lower than the amount you are really willing to pay.

Tips for Getting What You Want

Now, here’s the inside super tip you have been waiting for. The non-purchase money lender does not want to repo your car unless you leave it with no other reasonable choice. When I negotiate, I like to tell the lender that the car is an awful mess. I say I am doing the lender a big favor by advising my client to pay something for it instead of giving it up. If my client has young kids, I tell the lender there are Cheerios jammed into all the seats, the kids have vomited or urinated on the upholstery, and that the interior does not smell “fresh as a daisy.” I remind the lender that my client will get a ton of new car offers from every new car dealer in the county as soon as the discharge is granted. And, to persuade my client to reaffirm the loan, I have to bring to my client a very good offer. I think you get the idea.

⇒⇒⇒ TIP: One more big tip: The more willing you are to surrender the item, the better deal you’ll get. This is true for cars, jewelry, and any other kind of personal property. It is especially effective on electronics and furniture, which have virtually no used resale value in the hands of a lender.)

Negotiating a Good Deal When Reaffirming Jewelry Debts

You can get great reaffirmation deals on jewelry. Did you buy your jewelry from a store in big shopping mall? If so, the $4,000 diamond you bought will probably only fetch around $500 at a pawn shop. (Don’t believe me? Take your jewelry to a pawn shop or two, and see what they offer. This will give you a starting point for negotiating with the lender.) Armed with knowledge of the street value of your jewelry, you should have no trouble getting a reaffirmation agreement for about half the amount you still owe on it.

Negotiating Reaffirmation Agreements on Furniture

To get a great reaffirmation deal on furniture, use the same negotiating tactics described above for non-purchase money car loans. The older the furniture, the cheaper you can get it for.

Would you like to keep your furniture for free? Here’s how. Tell the lender you are willing to surrender it because it’s not in good condition. (If you have kids who have beaten up your furniture, don’t be shy about revealing the details.) If you can tolerate the risk of actually losing the stuff, you will probably get to keep it. It has been decades since I have seen a lender repossess household furniture. It has no street value to the lender, and it actually will cost the lender money to haul it away. What if the lender schedules a time to pick the stuff up? Don’t panic – it doesn’t mean it actually will show up. More likely, the lender is just trying to scare you into paying for it.

Negotiating Reaffirmation Agreements on Major Appliances

Major appliances do have some street value, unlike furniture. You should expect to get your stuff for about half the amount you still owe. The older your items are, the more you will save. If you have an appliance that is more than three years old, there is a good likelihood the lender won’t ever pick it up, even if it schedules a pick-up date.

Negotiating Reaffirmation Agreements on Electronics

You can often get good reaffirmation agreements on electronics. Old computer equipment is worth nothing. However, if your items are less than one year old, the lender probably does want them.

As with other types of items though, you can take a chance and tell the lender to come pick the stuff up. The lender will tell you (or order you) to bring the electronics back to the store. Nope. Tell them “no.” Bankruptcy requires you to offer to surrender the secured item to the lender if you don’t work out a reaffirmation agreement.  But it does not require you to bring the items to the lender. If the lender wants it, it has to come get it. And, like anything else, it costs the lender money to come to your home and haul the item away. Chances are, the lender won’t show up — unless you recently bought the items.

by Leon Bayer

Leon Bayer is a Los Angeles bankruptcy attorney.  He is a partner at Bayer, Wishman & Leotta, a California law firm specializing in bankruptcy.  The opinions and advice in this blog post are from Mr. Bayer alone, and should not be attributed to Nolo.  By answering a question on this blog, Mr. Bayer does not become your lawyer.

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Negotiating With the Bankruptcy Trustee to Buy Back Nonexempt Cars


ASK LEON

Bankruptcy expert Leon Bayer answers real-life questions.

Dear Leon,

Help! I filed Chapter 7 bankruptcy, and I have run into big trouble with the bankruptcy trustee. I have three cars (all nonexempt) that I want to keep if I can reach a fair deal to buy them back from the trustee. I have a 1986 Toyota pickup (hunk of junk), 1991 motor home (hunk of junk,) and my main vehicle which is a 2006 Toyota RAV 4.  The trustee and I agree that a fair buyback amount for the RAV 4 is $7,000. But the trustee insists I must also buy back the two other vehicles in an all or nothing deal, for $21,000. Can the trustee insist that I do this in order to get my RAV 4 back? Is there anything I can do?  

— Stanley

Dear Stanley,

There are things you can do. But first you should understand the bankruptcy trustee’s role and obligations. First, the bankruptcy trustee has the discretion to use “ordinary business judgment” when it comes to selling assets. This allows a trustee to decide the best way to sell a group of assets — individually or as one lot. A trustee also has a duty to maximize the money and assets in your bankruptcy estate by selling nonexempt assets for the best price possible.  (To learn how Chapter 7 bankruptcy works, the difference between exempt and nonexempt property, and more, see Nolo’s Chapter 7 Bankruptcy area.)

A trustee can’t legally give anybody a ”sweetheart deal.” A trustee also has the discretion to abandon any nonexempt assets (which mean they go back to the debtor) where such assets have “inconsequential value.”

Here, the trustee may feel that the value to the estate is maximized by selling everything in one single lot, the same way delinquent storage lots are sold to the public, ”winner take all.”

However, the trustee may believe your “junk” cars have no real value, and is playing poker with you to get a better price. You may have some good cards of your own to play.

Negotiate With the Trustee

You can make a counteroffer to the trustee.  For example, in this situation I might tell the trustee that my client will not pay more than the $7000 already offered; if the trustee doesn’t accept this offer within 24 hours, it will drop to $6000; and if not accepted at all, the trustee can come pick up the whole kit and caboodle immediately.

If the trustee is bluffing to squeeze more money out of you, this might force the trustee’s hand.

Bid at the Auction

If the trustee proceeds to offer the vehicles for sale, it is typical that the vehicles will be towed away to an auction yard.

Guess what? You are entitled to bid at the auction. You can attend the auction with your $7000, and bid under the same bidding rules as anyone else.

And you might even be able to buy the RAV 4 for far less than the $7,000 you originally offered. Here’s why. Bidders at these auctions typically inspect the items, but are not allowed to take a test drive and aren’t even allowed to start the engines. Items are sold ”as is.” This works to your advantage because other buyers can’t really be sure of what they might be buying.

You alone know the actual mechanical condition of each vehicle. That gives you a tremendous bidding advantage. At the price point where strangers will stop bidding, you may keep bidding confidently and win the auction because you know what you are really getting. At the end of the day, you may come out a very big winner, and the trustee may learn not to be so darn cocky.

Best of luck to you, Stanley!

Guest blogger Leon Bayer practices bankruptcy law in Los Angeles, California.  He is a partner at Bayer, Wishman & Leotta.  

The opinions and advice in this blog post are from Mr. Bayer alone, and should not be attributed to Nolo.  By answering a question on this blog, Mr. Bayer does not become your lawyer.