If you file Chapter 7 bankruptcy and want to keep a car with a car loan you are required to sign a reaffirmation agreement with the car lender. Reaffirmation agreements are not automatic; they are subject to approval by the bankruptcy judge. If your bankruptcy schedules show a negative monthly cash flow (expenses more than income) the bankruptcy judge may not approve your reaffirmation agreement. If you sign a reaffirmation agreement, file it with the court, but the court does not approve the agreement most car lenders will not repossess your car as long as you maintain current payments. Therefore, most bankruptcy attorneys advice clients to continue making car payments even after a bankruptcy judge rejects their proposed reaffirmation. I recently saw an email from a bankruptcy attorney about one client who signed a reaffirmation agreement, continued making payments after the court rejected the car reaffirmation, and then had his car repossessed by the creditor. The debtor was actually ahead one month in car payments. Regions Bank was the car lender.
This case is unusual. Another bankruptcy attorney sent an email about a bankruptcy case in Delaware where the judge found that a car lender cannot repossess a care if the debtor entered into a reaffirmation agreement that the court refused to approve and where the debtor had remained current on the car payments. (Baker, 400 B.R. 136). This issue has not been addressed by courts in Florida’s Middle District.