18 Jun I Am Thinking About Turning In My Car …
Turning in a car to get out from under high car payments may backfire. Many people think that a “voluntary” repossession won’t come back to haunt them, but any surrender or repossession of a car that does not pay off the loan in full can lead to big debt problems for the borrower.
When you buy a car and borrow money to do so, you are taking money from a lender and promising to pay it back in full. That debt obligation has some additional “security” or “collateral” to make it less risky for the lender but whatever the sale of the car doesn’t cover remains the obligation of the borrower.
In addition to affecting your credit score, lenders will typically sell the car at public auction for much less than the retail (book) value, and then come after the borrower for the difference between the sales price and the loan balance. I often see a “deficiency balance” on car loans for $6,000 – $8,000, or more.
When you are trying to get away from monthly payments that you can’t afford, these balances can be nearly impossible to pay off, especially when the lender often asks for payment of the balance in full. If you can’t work out manageable payments, these deficiency balance debts may be turned over to a collection agency, or an attorney. Attorneys will bring lawsuits for collection to get a judgment against you, and depending upon your state’s laws, use whatever methods are available to collect on the judgment.
Many people who give up their car, voluntarily or involuntarily, have other debts that they can’t pay. Before you give up your car, you may wish to speak to a good bankruptcy attorney because in bankruptcy, you may be able to eliminate other debts so your money can go to pay and keep the car.
Also, depending on your situation, bankruptcy can sometimes lower your monthly car payments or even lower the total balance owed on your car. Ask your attorney about Chapter 7 bankruptcy and Chapter 13 bankruptcy and how they might be able to help save your car.
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