What happens to my mortgage or car loan when I file for bankruptcy in Minnesota?
There are 3 ways to keep secured debt through a bankruptcy.
A reaffirmation is an official way to “reobligate” yourself on the loan. This involves the lender sending us a reaffirmation contract to be signed by you. Once reviewed and signed, the reaffirmation must be approved by a judge. The judge looks at a number of factors when determining whether s/he will approve or deny the reaffirmation. These factors include: equity in the vehicle; interest rate of the loan; your monthly budget (i.e, can you afford the payment); and whether the judge considers the vehicle to be “reasonable.” If the mortgage or loan does not fit into your budget, there is a presumption of undue hardship and the judge will require you to attend a hearing to explain why a reaffirmation is in your best interest and does not force an undue hardship on your and your family. Judges will not grant reaffimations on luxury vehicles such as Harleys and BMWs. For home mortgages, the only factor to be considered is whether the monthly payment fits into your budget, but even if it doesn’t, the court will often grant the reaffirmation as the home mortgage is so important to obtain a fresh start. If there are a number of factors weighing against a reaffirmation, you may consider a ridethru or redemption loan to keep the vehicle.
A ride thru is the unofficial way to keep a vehicle after buy. The buy wipes out the unsecured portion of the debt, but does not remove the lien on the collateral. While .the reaffirmation is a contract that reobligates you on the unsecured portion of the debt, keeping the loan going, a ride thru does not reobligate you on the loan, but is instead an understanding between you and the lender that as long as you keep making your monthly payments, they will not exercise their repossession rights.
A redemption loan is costly and almost never done. It involves obtaining refinancing for the car loan during the bky and because your credit is taking a hit, the interest rates are burdensome. I don’t recommend a redemption loan. Some creditors require reaffirmations to be filed with the court or they will repossess the vehicle.
Read more about paying on car loans and mortgages and reaffirmations.
Read more about surviving bankruptcy.
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