Colorado Springs, CO asked in Bankruptcy, Contracts, Banking and Collections for Colorado

Q: If I was discharged from my bankruptcy and 1.5 years later the bank charges off my auto loan... Can my car be repo'd?

I filed a chapter 7 in 2/2019. It was discharged in 5/2019. During, I tried to reaffirm my auto loan ($48,000) so I could keep my car. Once the bankruptcy was discharged the guy at the bank stops negotiating. He then tells me he can't process the reaffirmation agreement anymore and to fill out a hardship application with the bank instead.

For a year and a half it has been back and forth with the bank's Hardship dept losing applications or not receiving them. Plus, there has been repossession requests activated and cancelled from miscommunication with the Repo dept. Today I just spoke with the banks financial dept and they told me that there is no active repossession on my account but my hardship app was denied and my loan may be charged off within the next 7 days.

My question is if the loan is charged off... Can the debt collection agency repo my car or can they try to reaffirm the loan or if they don't repo it will I ever be able to make payments and get the title for my car?

1 Lawyer Answer
W. J. Winterstein Jr.
W. J. Winterstein Jr.
  • Bankruptcy Lawyer
  • Boyertown, PA

A: A Chapter 7 Discharge does not discharge a secured debt, up to the fair market value of the collateral. In other words, your bank has a lien on your car to the extent, and in the amount of, its fair market value.

But if the loan balance is greater than the car's value, so that there is, or would be, a deficiency balance after the car is sold, the bank cannot pursue you to collect that deficiency, because it would be an unsecured portion of the bank's total bankruptcy claim, and it would have been discharged in your bankruptcy.

When a creditor "charges off" a loan balance, that is only an internal accounting function, and with a bank, a regulatory matter that can affect the bank's lending limits. But the charge-off has no effect on the legally enforceable secured lien and balance the bank still holds on the car.

I've represented several financial institutions in my practice, and most of them seem to lose interest in collection efforts on discharged debts (although your bank may well be interested in proceeding to repo and sell your apparently expensive vehicle). You can easily ascertain a fair market value of your car online at the NADA site. That range of values, less costs of repo and sale, is probably what the bank is looking at.

The banker is right that it's probably too late to reaffirm the auto loan (I have gone back and reopened a bankruptcy case to submit a Reaff agreement and motion for approval, though, but local practice controls).

Bottom line for banks and financial institution: they just want the money, and what they call a "performing asset", i.e., a loan on their books that pays them every month.

Maybe your bankruptcy lawyer could help you negotiate with this bank.

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