Reaffirming a Car Loan & Your Credit

ASK LEON 

Bankruptcy expert Leon Bayer answers real-life questions.

Dear Mr. Bayer,

I filed for Chapter 7 bankruptcy last year. I did not include my car loan in the bankruptcy, but have stayed current on my car loan payments. My credit report now says that the car loan was included in the bankruptcy. I want to use my car loan payment status to rebuild my credit (I’ve never been late on a payment). Is there any way I can get the “included in bankruptcy” status removed from the credit report so that instead my credit report reflects my current payments?

— Steven

Dear Steven,

You are correct that a notation on your credit report saying  “car loan – current” certainly would help your credit score. However, in order for your car loan to appear that way on your report, you would have had to “reaffirm” your car loan in your Chapter 7 bankruptcy case. At this point, since you’ve already received your bankruptcy discharge, it’s probably too late to get the car loan reaffirmed. (To learn what happens to your car and loan in Chapter 7, see Your Car in Chapter 7 Bankruptcy.)

Years ago I had some luck reopening a bankruptcy case and vacating the discharge so that a reaffirmation could be filed with the court, but I have not tried it yet under the more complex “new” bankruptcy law. Also, the attorney fees to hire a good lawyer for such work would probably be very expensive.

Is your loan balance upside down? That is, do you owe more on the loan than the car is currently worth? Most car loans that I see are  upside down. If yours is upside down, it was probably a good decision not to reaffirm the loan anyway. (For example, why obligate yourself on a $20,000 car loan for a car worth only $10,000?)

Keep in mind that if there was no valid reaffirmation of the car loan, you can turn the car in and you will not be liable for any deficiency balance for the loan.  (Learn the definition of deficiency balance.)

Perhaps you could finance a new or used car and rebuild your credit that way? It’s not as hard as you think to get financing for a car during or right after bankruptcy.

— Leon

Next up: Ways to Finance a Car During or After Bankruptcy

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.