Expert: Regan Shinski - 3/12/2010

Question
My wife is filing Chap 7 bankruptcy in 2 weeks. She has a consolidated loan with wells fargo (includes a car) that is 4 months behind with a pay off amount of $13000. I offered .50 on a dollar but they refused. Will it eventually go to collections after bankruptcy if she doesn't reaffirm the debt? Is there a better chance of negotiating pennies on a dollar with a collection agency?

Thanks,

Greg

Answer
Hi Greg:

I'm not sure what you are trying to do.  If you are trying to keep the car and pay a reduced amount, it's not going to happen if it is a secured loan tied to the car.  Also, the original creditor will never let it get to a collection agency until they have collected the collateral/car.  What will happen is they will repo the car, sell it in a "commercially reasonable manner" - usually at auction, and then try to collect the shortfall.  At some point afterwards it will likely go to a collection agency.  This process can take months and months.  The collection agency then tries to collect the now-unsecured debt like anything else.  They can be negotiated with - usually easier than the originals creditors, but not always.  It just depends on the debt and collection agency.

You really have to ask what you are trying to do with your bankruptcy.  If you want a fresh start, they best thing is to get rid of the debt and car in the bankruptcy.  If you need this car or can't replace it with another one post-bankruptcy, your best option is to reaffirm and continue payments.

However, the WORST thing you can do is reaffirm the debt, only to fall behind again, have the car repossessed after the bankruptcy.  Then a new collection and debt will show up post-bankruptcy.  It really defeats the purpose of the bankruptcy and is NOT looked upon favorably by creditors as you try and re-establish credit.

Good luck, I hope this helps.  Don't keep the car if you can't afford it.

Regan