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What are my options here

Attleboro, MA |
Filed under: Credit score

I went through Bankruptcy about 2 years ago. My car was part of the bankruptcy, but I continued to pay the monthly payments even though I stopped getting statements because I did not want the bank to come take the car from me. I recently went to inquire about trading in this car and getting a new one, and when they ran my credit report it does not have a loan amount due and says that "the loan of the car has been satisfied by bankruptcy"
If the loan was satisfied through bankrupcy, what have all my payments been going towards? How do I trade in my car if the loan does not show on my credit and I do not have a title? Should I keep making payments, or will they they come take the car? What should I do?

Thank you both. There was no reaffirmation agreement signed (my lawyer at the time told me it is not a good idea to sign this) so if I understand you correctly, the creditor will not repossess the car if I continue to pay, but these payments will not ne reported to the credit bureau. So the payments are still going towards the loan I would hope, but I have no received any statement from them since the bankruptcy. Is only way to get a title to trade this in is to pay off the car then? The only other way would be to just let the bank take this which should not negatively effect my credit since they are no longer reporting on it anyways? Thanks again.

Attorney Answers 3

  1. Best answer

    The loan is secured by a purchase money security interest in the car itself. This creates a lien on it that survives bankruptcy. However, in the absence of a reaffirmation agreement, the underlying note would be discharged. Hence, reporting on it would cease and likely all you would receive would be statements with notations indicating there were not requesting payment, but simply providing you a running balance.

    In the absence of a reaffirmation agreement, your creditor's rights to repossess revert to whatever they have under your MA state law. In similar situations across the country a creditor will repossess ( or may do so) in the absence of a consumer protection law that prevents them from doing so if you are current and the bankruptcy was the only event of default OR they may simply take no action to repossess so long as you make the payments (this being more a policy and good business sense).

    If you sign a reaffirmation agreement which kept the loan intact on its original terms, then the loan should be reportable on your bureau (giving the positive benefits of the credit history). Moreover, if debtors fail to make payments after reaffirming a debt, then repossession is often likely and being sued for the deficiency after the vehicle is sold at auction also a possibility because the reaffirmation acts to exclude the car loan from the effects of your bankruptcy discharge order.

    Your best course of action is to contact your prior attorney and simply ask for a bit more explanation as to how the debt was treated. He or she will be able to advise you on MA state law.

    The posting attorney is admitted to the U.S. Tax Court and authorized to represent clients in all 50 states before the IRS. Outside of IRS matters, the posting attorney is licensed to practice law generally in the State of Texas and no other state. The information provided in this post is for general educational purposes only and should not be relied upon as legal advice by any party. No attorney-client relationship is formed with any party by the mere posting (or reading) of this information on the AVVO website. Circular 230 Disclaimer - Advice given in this response cannot be used to eliminate penalties with the IRS or any other governmental agency

  2. Your credit report is not a legal document. It is only a statement of what a creditor believes, and in this case, the creditor believes that you are not personally responsible for paying the car loan.

    However, you do not have the title to this vehicle, the creditor does. You or that car dealer can contact the lender to see what the payoff would be to release the title. In many instances, the balance on the loan is larger than the trade in value of the vehicle. This is called "negative equity" in the trade. Under these circumstances, it wouldn't make sense for you to trade in the vehicle.

    Hope this perspective helps!

  3. Massachusetts does indeed have a law that forbids repossession of consumer goods so long as all payments are current.

    The arrangement you appear to have is often called "pay-and-drive" by the bankruptcy bar. It's a tacit agreement to continue the status quo despite the bankruptcy. Many lawyers would advise you that this is probably a better option than signing a re-affirmation agreement, as cars are notoriously quick to depreciate -- especially if hit by another car!

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