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

Comments

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[johnleave]

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[Marita U.]

I live in Sarasota and bought a car from DRIVETIME with an interest of 32%. I lost my job and called to renogotiate the loan since the national interest is so low; they were unwilling to help and were very nasty on the telephone. I don't know what to do? I want to return the car but DRIVETIME told me that they will sue me and garnish my wages as soon as I find another job. I am desperate and don't know what to do.

[shane]

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[Robert]

I am surrendering my vehicle in a chapter 7, when do I have to surrender the vehicle, at the 341 hearing?

[bob]

I have a motorhome I can no longer afford, the bank whats to re-negotiate the loan under their hardship policy. I have always made the payments on time and the intrest rate is only 1.5% lower. How do hardship work and am I better of just giving it back to them.

[winstonzane]

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[David Siegel]

In my experience, I have found very few auto finance companies willing to negotiate the terms. Further, Ford Motor Credit will repossess the vehicle, absent an approved reaffirmation agreement, even if the debtor is current. Thus, it truly depends upon the finance company, the make, model and year of the car, and the geographic location of the car. With sub-standard auto lenders, there is a greater liklihood of negotiating the repayment amount and terms.