During Chapter 7 bankruptcy, you may have the right to keep the car you have, even if you have a loan on it. If you are, you will be required to reaffirm the loan with your lender, and your lender will also have to agree to this. When this is done, the terms will remain the same, and you will get to keep your car as long as you continue making the payments. Reaffirming a car loan can affect your credit score, and here are a couple things you should know about this.

Why Lenders Agree To Reaffirmations

Car lenders are generally willing to agree to reaffirmations of loans for several reason. The main reason is that it gives them the rights to your car and to the money you owe. If you do not reaffirm the loan, but include it in your bankruptcy instead, the lender can take the car from you but cannot come after you for the difference in the amount owed.

When you reaffirm, the lender can still repossess the car if you fall behind on the payments, and the lender can also come after you for the deficiency amount (which is the difference between the amount the lender sells the car for and the amount you owe).

How It Is Posted On Your Credit Report

If you reaffirm your car loan and convince your lender to approve it, it will actually be good for your credit. The car loan will appear on your credit report as a reaffirmation of debt if it is listed properly, and it will also state that the loan is open. One of the requirements needed to reaffirm a car loan is being caught up on your payments.

If you have made all your payments on the loan and continue to, the car lender will report the payments as on-time payments. This will actually help your credit, because payment history makes up 35% of your credit score. Staying current on your payments and having them reported to the credit bureaus monthly will actually make your credit score go up after filing for bankruptcy.

You can dispute your credit reports if your car loan is not listed properly. After your bankruptcy, you should obtain a copy of your credit report to make sure the loan is listed as a reaffirmation of debt. If the bureaus reported the loan as part of your bankruptcy, it will not help your credit score.

Bankruptcy can have a lot of effects on you and your credit, and it is important to understand what these effects are before you file. If you have additional questions about this subject, contact a bankruptcy attorney such as Michael D Doyle Attorney at Law. 

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