Negotiating With Car Lenders

I had a conversation with some bankruptcy attorneys at the bankruptcy court building. The attorneys told me that their own bankruptcy clients have had increasing success negotiating with automobile finance companies to modify terms of car loans after the clients filed Chapter 7 bankruptcy. Apparently, the declining value of used cars in a weak economy has made car lenders more flexible. The attorneys told me that their clients reported that automobile lenders are willing to modify interest rates, payment amounts, and even reduce loan balances to entice the borrower/debtors to reaffirm car debt. The lenders are less interested in repossessing used cars. Lenders are more likely to renegotiate with debtors who are behind on car payments at time of filing.

If you are preparing to file bankruptcy and are behind on car payments you might try calling your car lender to see if you can convince them to modify your car loan. If the lenders refuse to discuss modification, call them again after you file bankruptcy. For some people, even a reduced payment will not make reaffirming debt worth while. For others, a reduced car payment is what they need to afford the car they have.

I find that many bankruptcy clients are better off giving up their present car even if their lender might improve rates or terms. The simplest solution is to file bankruptcy and buy an inexpensive used car with low payments. Clients believe they cannot qualify for a car loan after filing bankruptcy. However, most lenders tell me they will extend car credit following a Chapter 7 bankruptcy discharge. Even if you pay a higher interest rate, the higher rate of a modest car loan is usually more affordable than a modified car loan on an expensive car with negative equity.

posted by Jonathan Alper, bankruptcy and asset protection attorney, Orlando, Florida