I have a motorcycle that I do not use and can't afford. Is it better if I surrender it voluntarily?
I bought a motorcycle last year at the advice of a now-ex-boyfriend. I had never ridden before, but thought I could learn to ride. A year later I have realized its too much for me. I have tried to sale it but the blue-book value is only $7500. I owe $13,000 (15.75% interest rate/ for 6 years/$300 a month). I am 28 and in college working on my undergraduate degree. I am on Social Security disability and work a part-time job, while going to school full-time. I can not afford to keep making the payments plus insurance if I can not ride it. My credit score is only 590 because of credit card charge-offs from 2002. If I stopped paying the note and the bank foreclosed on the motorcycle, what could I expect to happen to my credit? What should I do?
Any repossession is generally considered a strongly negative mark on a consumer’s credit profile, and will usually lower his or her credit rating significantly. However, given the fact that your credit rating has already dropped to 590 due to past financial difficulties, this repossession may not cause a large drop in your credit rating. Had your credit score been an 800, I would have expected a significant drop after this repossession, but since your credit rating has already been damaged by other delinquent accounts, the impact of this repossession will likely be less severe, relatively speaking.
However, since the credit card debts that were charged off were already six years old, their negative impact on your credit rating would have ended within a year; derogatory credit listings fall off of your credit report seven years from the date of charge off. Had this repossession not occurred, your credit rating may have started to improve once these credit card debts began to fall off your report; unfortunately, the repossession means that you will likely be facing an uphill battle in obtaining reasonably priced credit for several years to come. For more information about credit, credit scoring, and credit reports, I encourage you to visit the Bills.com credit resources page.
Motorcycle Repossession & Credit Report
While it is likely that the repossession of your motorcycle will cause you some credit problems in the future, you should probably be more concerned about the possibility of the lender attempting to collect a deficiency balance on this obligation once the repossession is complete and the vehicle has been sold. See the Bills.com article Effects of Bankruptcy, Foreclosure, Maxing-Out a Credit Card, and Debt Settlement On a Credit Score to see how delinquencies and other negative events harm a FICO score.
When a vehicle is repossessed, the lender generally sells the property at auction. The lender would then apply the money it received at auction to the balance owed on the actual loan. If the auction proceeds are insufficient to cover the balance of the note, the borrower can be held liable for the difference, which is called a deficiency balance. A bank can collect on a deficiency balance just like any other unsecured debt (like credit cards, personal loans, etc.).
In a worst case scenario, the lender could sue you for the unpaid deficiency balance; if the court grants the creditor a judgment against you, it can work to enforce the judgment as allowed by your state’s laws, which may include wage garnishment, bank levies, property liens, etc.
In this case, since you are a student and your primary source of income is Social Security, the lender may have a hard time forcing you to pay any deficiency balance. If this lender starts trying to collect on a deficiency balance against you, I strongly encourage you to consult with an attorney in your area to discuss the potential consequences if you are unable to pay the debt. See Can a Creditor Garnish Social Security? to learn more about this subject.
Bankruptcy & Deficiency Balance
Many consumers whose vehicles are repossessed find that filing bankruptcy can help solve their financial problems. Visit the Bills.com bankruptcy information page to learn more about bankruptcy and the options available to you. In addition, if you are unable to file bankruptcy, a debt resolution program, such as debt settlement, may be able to help you negotiate a settlement with you creditor.
To learn more about bankruptcy alternatives, visit the Bills.com debt help page. If you think bankruptcy may be a solution to your financial problems, consult with a bankruptcy lawyer to discuss the benefits and drawbacks of bankruptcy and how it may affect your financial situation.
I hope this information helps you Find. Learn & Save.
Mortgages, credit cards, student loans, personal loans, and auto loans are common types of debts. According to the NY Federal Reserve total household debt as of Q4 2023 was $17.503 trillion. Housing debt totaled $12.612 trillion and non-housing debt was $4.891 trillion.
According to data gathered by Urban.org from a sample of credit reports, about 26% of people in the US have some kind of debt in collections. The median debt in collections is $1,739. Student loans and auto loans are common types of debt. Of people holding student debt, approximately 10% had student loans in collections. The national Auto/Retail debt delinquency rate was 4%.
Collection and delinquency rates vary by state. For example, in Wisconsin, 16% have student loan debt. Of those holding student loan debt, 6% are in default. Auto/retail loan delinquency rate is 3%.
While many households can comfortably pay off their debt, it is clear that many people are struggling with debt. Make sure that you analyze your situation and find the best debt payoff solutions to match your situation.