Which Is Best For Your Credit Rating? (Bankrupcy or Token Restitution)

[ralph124c]

A friend of mine just had his car repossessed by the bank.
The car was sold at auction, and because it sold for less than the note, he now owes $2200 to the bank.
Since he has no income (lost his job), it would seem that he has two options:
(1) declare personal bankruptcy-this would remove the debt, but sink his credit rating
(2) set up a scheduled payment with the bank-perhaps $30/week. This would pay off the debt in about a year and a half. His credit would suffer, but not as badly.
Which would be the best course of action?

[friedo]

Option 2 would be vastly better, assuming it's feasible. Is the bank really willing to do a $30 per month payment on the remainder? And can your friend actually afford it?

[Rachellelogram]

I'm not sure the bank has any incentive to work with him. Instead of trying to sell the car himself when he realized he wouldn't be able to afford the payments, he made them go to the trouble of repo and auction. They will probably not be willing to work with him, and will sell the debt to a collection agency in short order. He would be able to negotiate with the agency, although it's unlikely they'd be happy to settle for such a low amount. They'd probably do it, but they might harass the shit out of him unless he knows how to handle debt collectors (protip: demand ASAP that all communication goes in writing, and cite the FDCPA).

Anyway, paying the collection agency is probably what's going to happen. $2200 is far too little to file bankruptcy over (unless he needs to scrub a bunch of other debts, too?). When I filed a couple years back, my lawyer mentioned something like 10k in debt was a minimum before a Chapter 7 filing would be accepted. No lawyer would take your friend's case. The retainer alone is usually around 1k. It would just be a bad idea.

The best thing to do would be to get a loan from a friend or family member, and pay them back at $30 a month until it's paid off. He avoids potentially predatory interest rates that way, too.

[md2000]

Once he's gone through repossession and auction, and owes $2200 he's not making payments, how much worse could his credit score get by going bankrupt? WOuldn't it already be at rock bottom?

I recall a story about a guy who went broke in Canada. IIRC, the court let him keep the family home, since there was no equity in it. The outstanding debts were converted to liens on the house. One fellow went around and bought out the other creditors' notes for pennies on the dollar.

A decade or more later, the guy is better off, the house is well paid down and worth more, the guy wants to sell and move. This other fellow appears with the liens, all transferred to him, and basically collects a small fortune for being patient and determined to get even with the debtor. The debtor was whining to the newspapers about how unfair this was...

[Mama Zappa]

Originally Posted by md2000

...
A decade or more later, the guy is better off, the house is well paid down and worth more, the guy wants to sell and move. This other fellow appears with the liens, all transferred to him, and basically collects a small fortune for being patient and determined to get even with the debtor. The debtor was whining to the newspapers about how unfair this was...

In the US, such debts would be well after the statute of limitations and therefore unenforceable. A bankruptcy would, similarly, have wiped out all the other debts (or reduced them, depending on the type of bankruptcy). Is there not something similar in Canada?

For the OP: I wonder if the friend might try negotiating with the bank, that they will remove the derogatory information from his credit report as long as he does continue to make those weekly payments.