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How Can I Stop Sweating About My HVAC Loan?



Question: I filed Chapter 7 in December and it was discharged in March. I was originally told that the unsecured HVAC loan I had through a credit union could not be included in the bankruptcy — but on my credit report, that loan shows up as closed and included in bankruptcy.

I contacted the credit union, and they said since I have been paying the loan, I have what is called a “retain,” where I pay the loan without it being reported to my credit in order to stay a member in good standing with the union.

The representative of the credit union said if I stopped paying, the loan would just be charged off as part of the bankruptcy. My question is, can the credit union come “repossess” the HVAC unit if I stop paying the loan?

— Tina in Oklahoma

Howard Dvorkin CPA answers…

While I was pondering your question, Tina, a intern asked me, “What’s an HVAC loan? Is that a new kind of mortgage?” When I explained it’s simply a way to finance a central AC unit for your house, she was stunned.

If you don’t own a home and have never dealt with what’s known as an HVAC system — which stands for “heating, ventilation, and air conditioning” —  you’ll be shocked to find out a replacement can cost more than $10,000 depending on the size of your house and where you live.

Because of the steep price tag, taking out a loan to install or replace such a system is quite common. They’re sometimes offered through the contractors themselves, but many people will go to their credit union, where interest rates will be much lower. That’s apparently what you did.

I consulted a good friend on your case. Steve Rhode is better known as the Get Out of Debt Guy, and here’s what he had to say…

Now that’s an interesting situation. The short answer is nobody wants your used HVAC unit. Ultimately, the exact answer is going to lie in your financing agreement. It will detail the credit union’s rights in case of default or bankruptcy. It’s also a great question for your bankruptcy attorney. I would suspect your bankruptcy attorney, like me, has never heard of such a repossession.

That’s obviously not the clear-cut answer you wanted to hear, Tina, but I must agree with Steve. I just don’t see the credit union dispatching a truck to rip out your HVAC unit so it can resell it and recoup some of its losses. However, neither Steve nor I can give you a definitive answer, because that’s wrapped up in the paperwork you signed.

I’d strongly urge you to take Steve’s advice and contact your bankruptcy attorney. It might not take that long to get an answer, and I hope the news is good.

Start the filing process, so you can get the fresh start you need.

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