When the bankruptcy laws were overhauled in 2005, it became mandatory for a debtor to reaffirm a secured obligation encumbering an automobile whether or not the debtor was current in the remittance of payments at the time of filing. Essentially, the age old concept of “pay and retain” an automobile in bankruptcy was no longer an option.
Initially, some auto companies were extremely aggressive and initiated programs to repossess cars in cases in which a reaffirmation agreement was not executed. Then, as time passed, and the economy weakened (and, in particular, the auto industry), the car companies softened their position in that they did not want to be burdened with a inventory of repossessed cars in addition to an overabundance of unsold new cars.
We then experienced TARP. The government bailed out the car companies and provided incentives to clear out the new car inventories – Hooray for the Auto Industry and the beginning of the return to 2006…
Since some of the U.S. based car companies have come back to financial stability, we are again facing the prospect of post-discharge repossessions if a debtor attempts to simply “pay and retain.” If you are considering bankruptcy, please bear in mind that you will be required to reaffirm your auto obligation, in particular if it is financed by either a U.S. car company or a U.S. financial institution.