When a debtor files Chapter 7 bankruptcy in California, the debtor will likely be requested to reaffirm their car financing debt. Most consumer credit agreements for cars include a provision that defines filing bankruptcy as an act of default. If the debtor is current on payments, and the only default is filing bankruptcy, this is known as “ipso facto” default. Unlike some states, California does not have a law that prohibits a creditor from enforcing ipso facto default in a consumer credit agreement. So a creditor, like Ford Motor Company, can enforce an ipso facto default in California. In other words, the creditor can repo the car if the debtor files a chapter 7 bankruptcy and does not agree to complete and sign a Reaffirmation Agreement.
If the debtor signs a reaffirmation agreement that is approved by the bankruptcy court, the "ipso facto" default dissolves. To execute a Reaffirmation Agreement in Chapter 7 means the debtor is agreeing that he/she will owe an outstanding balance on the car. The order that discharges the debtor's other debts will not apply to the reaffirmed car loan debt.