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Advice on Voluntary Repossession or Bankruptcy
Tuesday, Nov 4, 2008
Question: I can't afford our 612.00 truck payment, should I turn it in or file bankruptcy? We owe to much on it to sale, and we are broke.
Answer: Since I do not know the details of your financial situation, I cannot tell you if bankruptcy is the best option available to resolve the financial difficulties you are experiencing. If you are considering filing for bankruptcy protection, you should consult with an experienced bankruptcy attorney in your area to discuss your finances and the various options available to assist you. However, I can tell you that you should probably avoid allowing your vehicle to go into voluntary repossession if you can do anything to avoid it. The primary problem with repossession is that you will likely be left owing a deficiency balance on your loan, meaning that you may still owe a significant amount of money to the lender even though you no longer have the vehicle. When a vehicle is repossessed, the lender usually sells the car at auction, and applies the amount it receives at auction to the balance you owe on the loan; the borrower is generally responsible for any amount of the loan which is not covered by the auction proceeds. The problem is that lenders usually sell repossessed vehicles for significantly less than the cars are actually worth, which can leave a borrower owing thousands of dollars for a vehicle the borrower no longer even owns. The fact that you are already upside down on your current loan only increases the possibility of incurring a deficiency balance if you allow the loan to go into repossession. To learn more about auto loans, I encourage you to visit the Bills.com Auto Loans page.The better solution to your financial difficulties may be to file for Chapter 7 bankruptcy protection, which should allow you to surrender the vehicle and discharge the deficiency balance, along
with any other unsecured debts you may have. As I mentioned, since you are considering filing for bankruptcy protection, the best advice I can offer you is to consult with a qualified bankruptcy attorney as soon as possible. Depending on your income, assets, and various other factors, you may be able to discharge most or all of your debts though bankruptcy, freeing you of the burden of your outstanding debts. That said, filing for bankruptcy will have a strongly negative impact on your credit rating for several years, and will not completely fall off your credit report for ten years. Therefore, if you are planning to make any large purchases, such as a new home, in the near future, bankruptcy may not be the best choice for you. You should discuss your future plans with your attorney to determine what solution is best for your circumstances.
There are two basic types of consumer bankruptcy: Chapter 7 and Chapter 13. In a Chapter 7 bankruptcy, also called a liquidation bankruptcy, a bankruptcy trustee will examine your assets, and if you have any assets which are not exempt, sell those non-exempt assets to repay your creditors. Once your non-exempt assets have been sold to pay your creditors, all remaining unsecured debts will be discharged by the bankruptcy court. Your ability to qualify for Chapter 7 will depend on your income, your assets, and the laws in your state of residence. Many people who file for Chapter 7
There are two basic types of consumer bankruptcy: Chapter 7 and Chapter 13. In a Chapter 7 bankruptcy, also called a liquidation bankruptcy, a bankruptcy trustee will examine your assets, and if you have any assets which are not exempt, sell those non-exempt assets to repay your creditors. Once your non-exempt assets have been sold to pay your creditors, all remaining unsecured debts will be discharged by the bankruptcy court. Your ability to qualify for Chapter 7 will depend on your income, your assets, and the laws in your state of residence. Many people who file for Chapter 7
protection are able to keep all of their property because they have no non-exempt property. Each state has its own schedule of exempt assets, so you should consult with a qualified bankruptcy attorney to find out if Chapter 7 is a workable solution for your situation. An attorney will also be able to tell you if you qualify to file Chapter 7 under the new guidelines enacted by Congress in 2005.
A Chapter 13 bankruptcy, also called a wage-earner’s bankruptcy, allows you to propose a plan to repay creditors over time–usually five years. Your monthly payment amount will be based on your monthly disposable income as defined by the bankruptcy code. After you have made payments to your creditors for five years, any remaining unsecured debts will be discharged. Chapter 13 is commonly used by debtors whose assets exceed the exemptions offered by state or federal law. It is also used by many consumers who do not qualify for Chapter 7 relief under the means test, which went into effect in 2005 with the Bankruptcy Reform Act.
Again, if you are considering filing bankruptcy, you should consult with an attorney to find out if bankruptcy will benefit your financial situation. I encourage you to read more about bankruptcy at the Bills.com Bankruptcy Information page. I wish you the best of luck in finding a solution to your financial difficulties, and hope the information I have provided helps you Find. Learn. Save.
Best,
Bill
www.bills.com
A Chapter 13 bankruptcy, also called a wage-earner’s bankruptcy, allows you to propose a plan to repay creditors over time–usually five years. Your monthly payment amount will be based on your monthly disposable income as defined by the bankruptcy code. After you have made payments to your creditors for five years, any remaining unsecured debts will be discharged. Chapter 13 is commonly used by debtors whose assets exceed the exemptions offered by state or federal law. It is also used by many consumers who do not qualify for Chapter 7 relief under the means test, which went into effect in 2005 with the Bankruptcy Reform Act.
Again, if you are considering filing bankruptcy, you should consult with an attorney to find out if bankruptcy will benefit your financial situation. I encourage you to read more about bankruptcy at the Bills.com Bankruptcy Information page. I wish you the best of luck in finding a solution to your financial difficulties, and hope the information I have provided helps you Find. Learn. Save.
Best,
Bill
www.bills.com
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1. Posted by Shelley Nowlin on Wednesday 5th November 2008 07:53
I purchased a truck (Ford Edge) in May of this year. Just the few months ago I was in a better financial state. However, within the past couple of months, my finances have changed significantly and now I am unable to afford the truck. I have been considering turning the truck in to the dealership since I've had it for only 5 months. I am sick about this because I traded my car for this truck. What should I do?
2. Posted by Bill on Wednesday 5th November 2008 09:13
Regardless of the fact that you had the truck for only 5 months, if you return it, it will count as a repossession and will hurt your credit real bad. You need to exhaust all your options before you do that. See if you can refinance the loan to reduce the payment.
3. Posted by Javier on Wednesday 5th November 2008 13:53
Is it true your car loan as a secured loan can not be modified (lower payments, reduction of intrest, fees, etc.) by the finance company inorder to assist a borrower who is in hardship (loss of employment)and has been paying on the loan for over 3 years.
4. Posted by Bill on Wednesday 5th November 2008 17:05
Yeas, car loan lenders usually do not modify existing loans. Your only option would be to refinance the car with another lender.
5. Posted by Brandy on Saturday 10th January 2009 23:11
I just had a chapter 7 to discharge in Dec 08 and at the time wanted to keep my car which I have loan on. Since then, the burden had become to much. Can I surrender my car and be protected under the Chapter 7 still? Discharge was Dec 16,2008 .Todays date if Jan 10,2009. And If so, how long would I have before I will not be able to surrender the car and be protected under the Chapter 7 law?
6. Posted by Bill on Monday 12th January 2009 06:12
You need to go back to your bankruptcy trustee and seek to re-open your bankruptcy file and ammed it with your auto loan. I would recommend calling your bankruptcy attorney. Good luck.
7. Posted by Catherine on Tuesday 3rd March 2009 12:18
We are in the process of filing for a chapter 7 bankruptcy. It should be filed by June 2009 when the lawyer is paid off. Our car payment of $413 has become too much and have exhausted all extensions with the finance company. Since our credit is shot to get a loan of our own, my in-laws have agreed to co-sign on a new auto loan that should cut our payments in half. We are still upside down by about $3000 in our loan. What I am trying to figure out; is it in our best interest to do a voluntary repossession since we are filing bankruptcy or try to have the difference we owe written into the new loan?
8. Posted by Bill on Tuesday 3rd March 2009 12:59
If you have been approved for a Chapter 7 then you should go for a voluntary surrender. Whatever balance remains will be converted into an unsecured deficiency balance which you could include in your bankruptcy filing. You should also run this by your bankruptcy attorney to see what he thinks. Before you do, make sure that you have made arrangements for your new vehicle, as it might be tough for you to get a new auto loan after the repossession and bankruptcy on your credit, even with a co-signor.