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Can i refinance my car loan RIGHT BEFORE i file for a Chapter 7 BK to get a better % and shorter loan terms?

Chicago, IL |

Would refinancing my vehicle RIGHT BEFORE i file for bankruptcy (Cht 7) cause any issues since i intend to keep and reaffirm that debt? Is there a time period that must elapse after refinancing before i can file for bankruptcy for a debt that I want to reaffirm? Would that refinance completely remove the Security obligation under the cross-collaterization clause (between my 2 accounts) with my credit union that currently ties my car as security to a $9000 line of credit account (that i want to have discharged in a Chapter 7 BK)--otherwise both accounts would have to be reaffirmed if i wanted to keep my vehicle?

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Attorney answers 4

Best Answer

There are a few issues that you need to discuss with a bankruptcy attorney before trying to refinance your car loan. You need to review whether a new loan right before bankruptcy will create problems of "good faith" in your case. Getting more debt, or a new debt, right before filing can create problems.

Also, as other attorneys mentioned, the credit union probably won't release the title to the car without paying all loans you have with them. It is common for credit unions in Illinois to add the "cross-collateralization" clause, which says something to the effect of "any security pledged on this loan is also collateral for all other loans, past or present, with us". The credit unions take these cross-collateralized loans so they have better protection from default. They are not likely to give that up so easily. You need to speak with an experienced bankruptcy attorney to develop a complete plan of action before trying to refinance.

Usually, in a Chapter 7 Bankruptcy, people who owe a credit union on a vehicle have to choose between keeping the vehicle and paying for all loans and credit cards outstanding with the credit union, or just giving the vehicle up and not paying for any of the debt to the credit union. If too much is owed combined on all the debts, it makes more sense just to give up the vehicle and get a new loan for a lot less money on a different vehicle.

It's very important to consult with an experienced bankruptcy attorney to review all of your options.

Daniel J. Winter
Offices in Chicago, Gurnee, Oak Lawn, and Skokie, Illinois

Any advice given is general in nature and cannot be relied upon until the client retains the attorney after a full interview and review of the facts of the situation. No attorney-client relationship exists until a retainer agreement is signed and fees are paid.


Talk to your bankruptcy attorney about your ideas.

In no way am I offering you legal advice, and in no way has my comment created an attorney-client relationship. You are not to rely upon my note above in any way, but insted need to sit down with counsel and share all relevant facts before receiving fully-informed legal advice. If you want to be completely sure of your rights, you must sit down with an experienced criminal defense attorney to be fully aware of your rights.


Assuming you are eligible to do this, I don't see a problem with this strategy. Hope this perspective helps!


It is a smart move, however it seems that the credit union is may not release the title to whom ever you refinance without the entire debt being paid. Good luck.

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