Reaffirmed Vehicle and Bankruptcy - The Bills.com Blog

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Reaffirmed Vehicle and Bankruptcy

Thursday, Jul 23, 2009

Question: I filed for chapter 7 bankruptcy in 2005 and at that time I reaffirmed on a car. Every month I have been paying on it. If I let it go back does it hurt my credit?

Answer: When you reaffirmed on your vehicle during your 2005 bankruptcy, you basically agreed to continue your auto loan as though no bankruptcy ever took place. Once you reaffirm, the lender almost certainly continued reporting the account and your payment history to the consumer credit bureaus (the three major credit bureaus in the U.S. are Equifax, Experian, & TransUnion). If you have been making your car payments regularly and on time, then it should be reported as a positive item on your credit reports. However, if you stop making your payments and return the vehicle to the lender, the account will almost certainly be reported by the creditor as a repossession, which is a serious derogatory mark on your credit history which can cause a sharp drop in your credit score.


I generally counsel consumers to avoid repossession whenever possible, whether it be a voluntary or involuntary repossession. As I mentioned, a repo will likely appear as a serious derogatory mark on your credit history, and could make obtaining future credit more difficult and much more expensive. If you have already missed any of your monthly auto payments, you may wish to contact your finance company to explain your situation and ask if they can offer you any assistance in reducing your monthly payments. You may also want to look into refinancing your current loan to determine if any other lenders
can offer you better loan terms. To read more about auto financing, I encourage you to visit the Bills.com Auto Loans page.

I wish you the best of luck in finding a way to prevent your auto from being repossessed. However, if you cannot make your payments, it may be best to go ahead and turn over the vehicle rather than waiting for the creditor to repossess; while the effect on your credit will be the same, voluntarily turning over the car should end up costing you much less money than an involuntary repo.

I hope the information I have provided helps you Find. Learn. Save.

Best,
Bill
www.bills.com/blog/

Also, make sure to get a free financial health check-up with Bills IQ!

User Comments

1. Posted by Gordon's Credit Report on Friday 24th July 2009 01:09

I can tell you, I had to return my car and it knocked the hell out of my score :(

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