Bill, my daughter and i co-signed for an auto loan. i am in the process of filing bankruptcy and she cant afford to pay it on her own. how will this affect her credit and what would be least impactful. voluntary repossession, reposession or include in bankruptcy filing.
Unfortunately, all of the options you mention in your question--voluntary surrender, repossession, and including the auto loan in a bankruptcy case—will likely have similar effects on you and your daughter’s credit ratings. For a future lender reviewing your daughter’s credit report to help make a lending decision, the lender will see that your daughter took out a loan which she was unable to repay; how she returned the property securing the loan is of much less importance. However, I would generally recommend that consumers who are unable to pay their car notes contact their lenders to arrange for a voluntary surrender of their vehicles. Forcing a lender to employ a repossession agency to locate and seize your vehicle is generally quite expensive, and the consumer ultimately ends up responsible for those costs. You are better off avoiding the costs and inconvenience associated with repossession by arranging to voluntarily surrender the vehicle. You (or your daughter, since you are filing for bankruptcy protection) will still be responsible for the cost of reselling the vehicle, but these fees are generally much less than what you would expect to pay in a standard repossession. In addition, voluntarily surrendering your vehicle allows you to give up the car in a controlled manner, avoiding the surprise and embarrassment that often accompanies a visit by the repo man.
You and your daughter should be aware that voluntarily surrendering the vehicle will probably not be the last you see of your lender. The primary problem with any type of repossession, including voluntary 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. Since you are filing bankruptcy, the deficiency balance could likely be included in your case, though your daughter will likely be responsible for paying any deficiency created by the repossession of her vehicle. To learn more about auto loans, I encourage you to visit the Bills.com Auto Loans page at http://www.bills.com/auto-loans/.
As I previously explained, repossession will likely have a strong negative impact on your and your daughter’s credit rating. While there is not much you can do to avoid the credit impact associated with repossession, you can take steps to mitigate the damage over time. For example, you can work to build positive payment histories with your existing creditors and open new accounts to create new positive trade lines. You can also keep an eye on your credit reports to make sure that all of the information appearing on them is accurate and up-to-date; if you find any incorrect derogatory listings, you can dispute them with the credit bureaus to have the inaccurate information removed. You can also work to pay down debts you already have; the accounts included in your bankruptcy should be discharged, but your daughter may have outstanding debts which she may wish to pay down in order to lower her debt-to-credit ratio, which should have a positive impact on her credit score. To learn more about credit, credit report, and credit scoring, I invite you to visit the Bills.com credit information page at http://www.bills.com/credit/.
I wish you and your daughter the best of luck in finding a way to prevent this foreclosure; however, if that is not possible, you should be able to reduce the damage caused by the repossession. I hope that the information I have provided helps you Find. Learn. Save.