Expert: Creditwrench - 7/30/2008

Question
About 6 months ago, after much soul searching and budget making attempts, we did a voluntary surrender on my car.  It was explained to me by the lender that the car would be sold at auction for more than likely a lot less than it's worth and I would be responsible for the deficiency balance (BIG UNDERSTATEMENT).  It was sold at auction and the defiency balance is actually higher than what they got for the car.  The defiency is $13,400.00.  I was contacted by the lender and told if I can send them $100.00 a month (which just covers the interest) that they could keep the file away from the litigation department.  If it goes there they said, the full judgment will be due, including probably another $1,000 to $1,500 in fees.  He said if this happens they can garnish my wages for up to 1/4 of my paycheck.  They said I could do this for as long as I want or need to, as long as my payments remained timely.  At some point, if I am able to get the money, I could settle with them for $6,500.00.  At this point in my life, I have no hope of getting a loan of this size.  My question is this:  A friend of mine is 2 weeks away from having to turn in her leased car.  She owes $8,000.00.  When she talked to her lender about getting an extension of time, they told her she could get up to 6 months, but they preferred she keep it down to 3 months.  When she asked why, she was told that they (the lender) purchase gap insurance on the vehicles so if they suffer a loss on the vehicle, they're covered.  I was curious if lenders on regular car loans also have this gap coverage?  If so, when my car was sold at auction and there was a deficiency balance, would they have received a settlement from their insurance company?  And if so, can they collect from both me and their insurance company on the same debt?  Also, if this is possible, how would I find out if they did collect from their insurance company?  Or am I just screwed and going to end up paying on this car I no longer have for the rest of my life?

Answer
You are asking me a range of questions but I can't tell you a thing about the insurance stuff. I can tell you that your friend's situation is entirely different than yours because your friend is dealing with a leased vehicle deal and you are not. I don't know a thing about vehicle leasing terms or plans.

On the other hand both of you can end up with the same results. The first step is to quit paying. Of course, that is going to get your credit reports hit pretty hard but you can live with that for a few months or even a year or two if you have to. That's still better than paying for something you will never have or get any use out of.

You should see my web page at http://www.creditwrench.com/default.html to learn what you should do about your situation. Both of you can use what I have posted on that page.