About 5 years ago, we went bankrupt, due to a lot of medical bills. About 6 months after that we bought a car. It was a used car, from a dealer with a very high interest rate. There were only certain cars we could buy at this dealer because of the credit issue. Although the payments were high, we bought it anyway to re-establish our credit.
Two days ago, a head gasket in the car went, the engine seized and the car died. In the years leading up to this, it’s also been hit by a deer, and I haven’t been able to get it to pass state inspection in three years.
I have a full year left of payments on it or a payoff of $4,700. I don’t have it and there is no one to lend it to me. I can’t continue to make payments on a car that can’t run and I can’t afford payments on two cars. I can’t sell the broken car because no one will pay enough for it to come even close to paying it off.
I called the finance company and asked what my options were. Thye told me to buy another car and just have the balance added to the new car loan.
I tried that yesterday. I haven’t got any down payment at all (It’s been a really bad year) and even with the rebates, I can’t get a payment anywhere close to what I currently pay because of the old car payoff.
So, how bad would it be for me to simply buy another car and surrender this one ? I know it would mess up my credit, but if I make good payments on the new one would that improve things ?
Even if you had a car that was in good condition repossessed and sold by the company to pay off your loan it would be on your credit history for 7 years. You apparently intend to get more credit (which will presumably require lying about your current debts) while not intending to honour the debt you have. I think you need better advice than I can give you. You will increase your debts if the car is repossessed because they will charge you to do it.
Surrendering the car may not cancel the debt and even if it does, it may not be your option to surrender but the finance company’s. If that’s the case, they probably won’t take the car back. You need to get legal advice on these questions.
It’s extremely unlikely that the debt would be cancelled. Finance contracts just aren’t normally written that way.
The car will go to auction, get sold to the top bidder, at whatever price the bidder offers. If it’s $200, then dragongirl’ll still owe the finance company $4,500. If fact, it could even increase the debt if there’s a clause in the contract that allows recovery of repo costs. The repo agent might charge, say, $500 on top, leaving a net debt of $5,000.
And following along that course, if there was a judgment against you for the surrendered car, it one way it might be collected would be to seize and sell the next car that you purchase. (I don’t know the laws in your area, so take this with a grain of salt. Just something you might wish to look into.)
It appears that shortly after bankrupcy you bought a used car with a loan that involves high interest and a long repayment period (5.5 years). I’d submit that’s not the highest-percentage way to re-establish good credit.
I’d say your next car should be a “beater” - cheap and nothing to brag about. Look for a “hand-me-down” car from a friend ready to move up who will accept under $1000. Then get your finances in order without the burden of a hefty monthly car payment.
It’s a little late for my advice, but maybe someone out there will take it to heart and learn a lesson that can really help. This is one of the rules I try to live my life by, and I try to stick to very well: Don’t finance things that depreciate.
We have all gotten ourselves into financial holes, myself included. But if one can at all avoid financing things that depreciate, in the long run it saves quite a bit of money.
We don’t drive the newest cars on the block, but we saved our money and own both of them. Mine is a '89, hers is a '98. By sticking to my rule, it means no furniture, appliances, needless credit card expenses, etc. on credit. If we really want something we save up our money and buy it. The only thing we have that is financed is our house, and with any luck it will very likely not depreciate. It really forces you to live within your means.
What the others said. Get a beater for cheap, and finish out the loan on the dead car. Stiffing the loan holder will do you little good and lots of bad.
Well you could just stop making the car payments and look for someplace like J.D. ByRiders to sell you a new (used car). It would be far better to save a couple of thousand and buy an old Toyota or Honda, but that might not be possible (after all you have to work to save, and you often have to have a car to work). They will eventually repo your current vehicle and possibly sue you for a deficiency balance. However, that will probably take over a year (if they even bother depending upon how promising they think their chances of recovery are) and by that time you could file another Chapter Seven BK (once every six years is the rule in most jurisdictions). It is probably a really bad idea to finance what you owe on your current vehicle into a new auto as this will only bury you further (if you could even find someone who would do this).
This only underscores how my proposal to have a “GoodWill where people could buy donated vehicles for very little” might help many lower income Americans to at least have transportation. Imagine if you could go to such a place and buy a “beater” for a couple of hundred dollars. Even if it quit in a few months you could go back and buy another (and it might last for years as many such beaters do). This would allow people to get out of the “overpriced, used/new car cycle”.
Apparently the car you have now is worth close to zero but you owe $4700 on it. How much would it cost you to repair the car? Are you sure the engine is ruined? Maybe you could borrow just enough to fix what you have.
If that can’t work, have you at least shopped around at other dealers, banks, s&ls, etc? It sounds like you’ve been hustled by both the dealer and the finance company. When you said you can’t make a down payment “even with the rebates,” that implied that you’re looking to buy an actual new car. Forget about it. You can’t afford a new car. Maybe you could buy a used car from a reputable dealer who would help you roll the purchase price and the existing debt into a loan that you could afford. If you have a credit union at your job, maybe you could take out a lower-interest loan to pay off the loan you have–credit unions sometimes are more flexible in their loan policies than other institutions. Maybe you’ll have to find a way to get around by public transportation for a year.
But it’s very unlikely that the finance company will let you walk away from the debt, and if they get a judgment against you they might be able to garnishee your wages, attach your bank account and do all kinds of other nasty things. That’s the last thing you want to do.
This is what my husband does for a living, so I’m talking to him about this now and typing in his answers:
The finance company has given you the best advice (trade this car in and have the balance added to a new loan). Your finance history is already rocky, and having the car repo’d would definitely be a black mark on your credit. If it is repo’d and auctioned, you will still be responsible for the remaining balance plus fees. They will most likely NOT sell your car at auction to someone who is going to drive it; they’ll try to sell it to a dealer, and it doesn’t sound like the car is in good enough shape for that. Yes, the finance company CAN garnish your wages.
dragongirl - the WryGuy is willing to have a look at your situation more closely and see if there’s any better options for you. No guarantees, but my email is in my profile, so if you want specific advice, drop me a line.
I disagree that financing the current loan onto a new auto loan is a good idea in most cases. Here are some reasons:
You will be even more buried on the automobile. Your primary moral/ethical obligation is to your family rather than your creditors in my opinion.
If you are already several months late (and thus showing a 90+ on your credit report) then getting the car reposesed will not have that much additional impact upon your FICO scores (this is especially the case if you are late on multiple other accounts). I can’t tell you how many credit reports I saw when we had our mortgage business where the person who struggled to pay there bills (albeit late) had much lower scores than those who simply defaulted and filed Bankruptcy.
By the time that the auto company gets around to suing/and then garnishing you for the deficiency balance you should again be eligable to file a chapter Seven (and they may decide that it’s not worth their legal costs to sue you). You could also file a chapter 13 to avoid garnishment is they somehow managed to sue you before the statutory time limit for refiling a Chapter Seven. Note that although you have to pay your creditors back in a Chapter 13 it is done genearally on a much more lenient schedule than in a garnishment situation. Also, it is often possible to get the debt deeply discounted relative to the outstanding balance (I know several local attorneys who claim that they can usually achieve a 90% discount and almost always achieve at least a 60% discount on outstanding debt in the context of a Chapter 13 BK).
Again, your best bet would probably be to find a “beater” car (preferably a traditionally dependable brand such as an old Toyota or Honda) that could provide basic transportation without the double digit interest, and inflated sales price that most buy here pay here places will charge.