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Advice if in College With a Lot of Debt

I have a decent paying job and go to school, but my credit is really shot. Where do begin the recovery process?

At the age of 19 had a 700 credit score rating. 3 years later it's down to about 450. In July of this year I was going to cash an annuity out early (it matures next August) however the judge declined it. With "banking" on this settlement, I've had two overdrawn and closed checking accounts, 2 credit cards with pymts over 90 days late and 2 credit cards set up with a payment plan. I own a BMW and I owe about $20k on it. I have a decent paying job and go to school (I get scholarships) so the money department isn't usually bad. HOWEVER, now I'm in a position that I'm paying family back, getting my credit cards back on track and getting a payment plan with the banks for the overdrawn/closed accounts... It's going to take a while I understand.... I recognized I screwed myself over in the last few months and I am considering a voluntary repossession of my car in order to save $450 a month. I'm only considering it because it over heated and the repairs will cost around $3k to fix. That on top of trying to be in good standing with my creditors and pay people back on top of trying to survive (rent/gas/food/utilities) isn't feasible. So My question is this: What will the voluntary repo do to my credit if it isn't already down in the dumps? Am I better off filing a bankrupcy? I'm getting the annuity next year so I want to struggle the best I can but I'm just freaking over my head with debt and money related issues. Also, I work for an insurance company and when I'm done with school when I apply to other jobs, do you think that they will deny me of a job because I have a repo on my record? HELP!!! I'm nervous. School is what I live for for the moment as it is a means of a better standard of living in the future and I don't want to jeopardize everything now.

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Bill's Answer
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Generally speaking, credit scoring models make no differentiation between a voluntary and involuntary repossession of a vehicle; any repossession is considered as a strongly derogatory item on a consumerÂ’s credit file. For most consumers, the repossession of a vehicle would cause a sharp decline the consumerÂ’s credit score; however, since your credit score has already fallen to around 450, it is unlikely that your it will fall much further. Because of the credit problems you are already experiencing, the impact of surrendering your vehicle should probably not be your primary concern. Rather, you should focus on resolving your debts, which should then lead to an increase in your credit rating over time. To read more about credit, credit reports, and credit scoring, you can visit the Credit Resources page, where you can read about how credit works and learn about various options to help you improve your credit rating.

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 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. If you are already upside down on your current loan, as most consumers are, the possibility of incurring a deficiency balance as a result of repossession increases. To learn more about auto loans, I encourage you to visit the auto loans page.

I understand that your credit rating is important to you, as it should be. However, your credit rating is almost certainly not going to increase while you have all of these outstanding debts which you cannot afford to repay. Therefore, I think that the best thing you do at this point is focus on resolving your outstanding debts, which are one of the primary cause of the credit problems you are experiencing. Given the amount of debt you have accumulated, and the fact that you cannot afford your monthly payments, you may need to consider filing for bankruptcy protection. Depending on the type of bankruptcy you are able to file, you may be able to discharge all of your unsecured debts. You may able to able to discharge secured debts, such as your vehicle, if you are willing to surrender the collateral property. For example, bankruptcy may allow you to surrender your vehicle without the risk of incurring a deficiency balance on the loan. If you are considering filing for bankruptcy protection, the best piece of advice I can offer you is to consult with a qualified bankruptcy attorney as soon as possible. offers a wealth of information about bankruptcy.

Filing for bankruptcy would have a long-term negative impact on your credit rating, as it would remain in your credit profile for ten years. However, even with a bankruptcy on your credit report, you may be able to rebuild your credit to a reasonable level within a few years if you make wise credit decisions going forward. As for your career plans, I cannot tell you if repossession, bankruptcy, or any other derogatory credit item would prevent you from finding employment; some employers do review applicantsÂ’ credit reports in their hiring process. In addition, some state licensing agencies require applicants to disclose their financial history before a license can be granted. If you are worried about your ability to find a job or obtain the necessary licenses to work in the insurance industry, you may want to contact your stateÂ’s licensing agency to inquire about how a bankruptcy, repossession, judgment, or other credit problems may affect your ability to obtain a license or find employment in the insurance profession.

Again, I strongly encourage you to consult with an attorney as soon as possible to discuss the issues you raise in your question; a qualified attorney should be able to review your financial situation and explain the various options available to you. I wish you the best of luck in resolving your financial difficulties, and hope that the information I have provided helps you Find. Learn. Save.



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