Attorney Pete Moak Talks about the Pros and Cons of Vehicle Affirmation – September 2016 Interview


Hello everyone. We are here with our friend, Attorney Pete Moak, and he talks with us about bankruptcy matters. Each time he comes, he brings with him a wealth of knowledge and things that we have not considered as a benefit of bankruptcy.

Today, he’s going to share with us about vehicle reaffirmation, if I’m saying that correctly. It’s a new term for me, you guys, so I’m ready to take notes, because I’m like, “I’ve never heard of this. What is this? How does it benefit me?”

Welcome back, Pete. How are you?

Pete Moak:

I’m doing wonderful. Thank you very much. This is an important topic, and one that many clients have questions about so I’m glad to go over this. We’re dealing with how does the bankruptcy affect the debt that I owe on my vehicle.

A vehicle debt is a secured debt. The papers that are filed with one’s petitions and schedules is a form called the statement of intentions. This lets the creditors know, when you have a secured debt, that is collateral attached to the debt that’s owed, how you’re going to deal with that debt when you file bankruptcy under chapter 7.

The form has 3 options. It’s called surrender, meaning that you’re going to give up the vehicle and not owe them any more money, or you’re going to redeem the vehicle, meaning you’re going to pay them the balance that’s owed in a lump sum payment, and keep the vehicle. The third option is to reaffirm the debt, which is also meaning that you’re going to keep the vehicle, but you’re going to give back to the creditor all of the rights that they had before you filed bankruptcy. As to that particular creditor, you’re agreeing to treat them as if you had not filed bankruptcy. What that means is that the creditor will have the right, if you miss your payment, to repossess the vehicle, and most importantly, the creditor will have the right to sell the vehicle and to come after you for a deficiency judgement.

A deficiency judgement is the main thing that we’re concerned about here. If you file bankruptcy and don’t reaffirm the car debt, and you keep it under what we call retain and pay, meaning you’re going to keep the vehicle and continue to make the regular payments but you’re not going to reaffirm that debt, then if the car falls apart, engine drops out, you lose your job and you can’t make the monthly payments, then you have the benefit of giving the car back to the creditor as if you were surrendering it at the beginning. You can do that any time you’re in the bankruptcy. In other words, even after the bankruptcy is closed. If you don’t have the money to pay, and you decide, “You know what? This car isn’t worth it anymore. I’m just going to return the vehicle and not owe them any more money.”

That’s what we want for all of our clients. We don’t generally want our clients to do a reaffirmation. I use this example. When a person comes to me, oftentimes they’re in such a severe debt situation that they feel like they’re in quicksand. They’re in the quicksand and they’re sinking. They need some help, so they hire somebody like me, which they pay money to me to help them. They hire me, I go get a pole and I pull them out of the quicksand. Now they’re out of the situation where they’re sinking. Then they say, “Oh, but my creditor, the lender on my car loan, wants me to reaffirm the debt, so I’m just going to step back into the quicksand again.”

Well, that’s not a good idea. In almost all cases, we’re going to recommend to our clients that they not reaffirm the debt, because they are exposing themselves to the risk of what is called a deficiency judgement. If the creditor repossesses your car and sells the car at an auction, and recovers maybe 35%, 40% of the amount that you owe on that car, then the difference is called a deficiency. If they have a debt of $20,000 and they sell the car for 10, the deficiency is $10,000. Then they would have the right, if you reaffirm the debt, to come after your for that $10,000 by getting your judgement and garnishing your wages. If you did not reaffirm, they couldn’t. You just surrender the car. If you did reaffirm, then they would be able to sue you, get a judgement against you, and garnish your wages to recover that $10,000. You could not file bankruptcy again because you’ve already filed bankruptcy and you can’t do it again for 8 more years.

That’s the reason that we generally do not want our clients to reaffirm the debt. I won’t say that it wouldn’t be in your best interest in every situation, because it may be that the company that has your car loan is one of the creditors that simply requires that you reaffirm the debt in order to keep the car. The only 2 lenders that we deal with in that situation in Arizona is Arizona Federal Credit Union and Ford Motor Credit. If you have either of those creditors as the one that loans you the money to buy your car, then you’re going to reaffirm that debt in order to keep the car.

We’re saying that, if you don’t have those 2 creditors, the best approach is not to reaffirm the debt, and you may want to consider just doing what we call retain and pay, meaning, I’m going to continue to pay all the payments that are due, and I’m going to pay it on time, and I’m going to keep the car insured, but if something happens down the road and I can’t afford to make the car payments, I can always just surrender the car and not owe them any more money.

Those are the options that we talk about. Reaffirmation involves a requirement that the court actually approve it, so even if a person signs the reaffirmation agreement, they have time to make that decision again and say, “You know what? I’ve changed my mind. I’m going to revoke that reaffirmation agreement.” Or it may be that you decide that you want to reaffirm, and the judge evaluates it and says, “This is not in your best interest. I’m not going to approve your request to reaffirm the debt.”

Usually, the judge will not reaffirm or approve of the reaffirmation if the creditor is not doing something to make it to your advantage, meaning the creditor is still going to charge you the full amount that’s the balance owed … In other words, they’re not going to compromise and reduce it, or they’re going to charge you the full interest rate, and they’re not going to compromise to reduce it.

The most often reason that the judge won’t approve it is because the amount of money that you have left over after paying household living expenses is a negative figure. If your income minus your living expenses already leaves you with a negative figure, then the judge is very concerned about approving the reaffirmation because you’re going to be having a hard time being able to make that payment, and there is a strong likelihood that you will fail. Under those circumstances, the judge will say that the reaffirmation would place the debtor, that’s you, in an unusual hardship, an undue hardship. In those circumstances, the judge is not likely to approve of the reaffirmation.

It’s a little bit complicated. It’s something that the bankruptcy amendments have made more complicated. The best choice is to either redeem the vehicle, or, if it makes sense because you owe a whole lot more than what the car is worth to surrender the vehicle and not to reaffirm, or to simply continue to make the payments. That’s called retain and pay.

Those are the discussions that we have with our clients about reaffirmation. In almost 100% of the cases, we’re going to suggest that the best approach is not to reaffirm the debt.

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All right. First of all, I got my education on what that reaffirmation is. As much as I was listening and just imaging the stories of clients that you have, we can think of reasons of why you need to keep that car, whether it’s an emotional attachment or gets me back and forth to work and I don’t want to go through the trouble of having to find another car that fits my current budget after doing the bankruptcy, I can think of all the excuses to say, “Hey, Pete, come on. Let me keep the car.” I appreciate that you care about your clients and say, “Listen, the purpose of this whole process is to get you back on your feet.” Even the judge … I think I would be thinking that the judge is mean, but the judge is saying, “Well, listen, you’re not able to handle this, so this is not a good idea. We’re not going to allow this.”

I’m listening, and that’s what I took from this, and I was feeling really emotional about keeping this car, this imaginary car in this scenario for me, but just realizing-

Pete Moak:

That makes a lot of sense, Katherine, because do become emotionally connected to their cars and they worry, because they have to have a car that’s reliable to get them to work, but in almost every case the debtor is going to be able to keep their car. The only time that it might be a difficulty in keeping their car is if they’re already behind on their car. If a person comes to me and they’re behind 3 months on their car payment, and they don’t have the money to be able to catch up, then the car lender has the right to repossess the car. If that happens, everything’s not lost. I can help you find a car that you can afford to buy, the day after the bankruptcy chapter 7 is filed. In other words, there are lenders out there who will lend money to my clients if they have income, to be able to get another car the day after their bankruptcy case is filed.

You can step into another car, and maybe it’s a car that’s more affordable. Most every time, a person is able to keep their car, or get a replacement car that’s going to work out just fine for them.


Thank you so much for that assurance there. Let people know how they can get in touch with you.

Pete Moak:

Okay. The best way, of course, is to call, at 480-755-8000, extension 1. Another way, of course, is to go to my website at Of course, you’ll be able to see our phone number there and call from the website. I have a wealth of information, topics that are discussed …


Yes, you do.

Pete Moak:

These interviews that are being discussed every week are placed on my website so a person can go back and read what I had to say about a particular topic.


Awesome. You do have a wealth of information, just so many things that people didn’t know to think about. We get into a situation and we panic, and fear shuts us down. Not only have you made me comfortable myself, not that I need it at this point, but I would feel comfortable coming to you, saying, “Hey, I find myself in a bit of a pickle. Is this an option for me?” I would be okay having this conversation. It would be an elephant in the room if I didn’t, with all the information that you’ve brought to us. If people are concerned about transportation, will I be able to keep my credit cards, will I still be able to take care of my family, will I be embarrassed, will people know, all of those things that we concern ourselves with, and you have definitely, over the several interviews we’ve done, brought that assurance to people, and I know in our future interviews you’ll continue to do that.

You just said something that was just a bonus for me today, and I hope people heard you. Yes, you may be emotionally attached to your car, and I understand your concern about the need for the car and something reliable. The day after this is done, I can further help you to get into transportation. That’s something that we don’t think about. I’m going to this attorney, he’s going to do this for me, and know I’m left trying to sort these other things out, but you’re going, what I would call, the extra mile. It may be what you normally do but, in my mind as a consumer, I would still go the extra mile.

Pete, I want to say thank you again for being a part of this week’s This Needs To Be Said, and sharing with us another topic in bankruptcy matters. Have a wonderful day.

Pete Moak:

All right. Very good, Katherine. Thank you. I’m signing off now. From The Moak Law Firm, Walter E. “Pete” Moak.

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