Expert: Terry Leeders - 1/12/2009

Question
Dear Mr. Leaders:

I am writing you on behalf of my father.  He is 60 years old, and recently became unemployed. Because he was a self-employed subcontractor, he is unable to recieve unemployment assistance from the state (Pennsylvania).  Even prior to losing his job, he was having financial difficulties due to what he will admit were poor decisions, but they were made when his income was higher, and he felt he could afford them.  Among these are $15,000 in credit card debt; a sub-prime, adjustable rate mortgage he could no longer afford (and luckily was able to sell his home before foreclosure, but most of his profit was taken to pay a lien placed on his him due to a judgement for CC debt), and a car lease that is now beyond his means to pay.

He was employed in home construction, and has a work truck which is now basically worthless due to high mileage and condition, but he still makes payments of about $250/month for the loan and insurance.  His other vehicle is a car, which he leases for $389/month, and the lease is not up until late in 2009.  He also still has over $15,000 in CC debt, which he has been unable to make payments on, and collectors are calling him often.  He has not been able to find a job making anywhere near what he was making 2-3 years ago when the housing market was booming (About $45,000 then, now would be happy to find something for $10/hour).  He's willing to take just about any job just to survive, but he will definitely not be able to paydown CC debts, and both of his cars.  He is considering bankruptcy, which I think is probably a good idea.  However, he wants to continue making both car payments, because he is afraid that having both a bankruptcy and a car repossession on his credit report will be worse then just a bankruptcy. He thinks if he tries to take out a car loan in the future, having only a bankruptcy will look better to lenders than a reposession and a bankruptcy.  I've told him I don't think he'll get loan in the next few years anyway, in either case.  And with his employment situation, I think he is unwise to struggle to continue making $400+/month in lease payments and insurance for the car.  I've told him to keep the truck and just let them repossess the car, since he is probably going to declare bankruptcy anyway.

So, my question is:  Which is worse, to declare bankruptcy and keep paying on both vehicles, or to let them repo the car and still declare bankruptcy?  Or is there something else you would recommend he do?

Answer
It probably won't really be much different.  The bankruptcy trumps the repo, but that fact that it happened (even if voluntary) may show on his credit report.  He can reaffirm a debt in bankruptcy to keep a vehicle if he wants to keep the truck, or he can 'assume' the lease and keep paying on it till its thru.  He should meet with a local bankruptcy lawyer to help weigh the pro's and cons of the matter.  Normally, many people are financing vehicles the first month after bankruptcy, usually about 90 days after filing.