Expert: Regan Shinski - 11/19/2009

Question
QUESTION: I purchased a car in Florida that I can no longer afford. I recently registered it in Texas (where I'm living temporarily) with the intention of selling it to a dealer, but it turns out the car is worth less than what I still owe.  Since I can't afford to pay the difference, I'm considering surrendering the car voluntarily, but am concerned about being sued for the deficiency balance...not only am I worried about what it will do to my not-so-great credit, I'm sure that the dollar amount will increase substantially...true?  Are there options that I'm overlooking?  And...which state's laws apply?

ANSWER: Hi Jennifer:

The advantage to "voluntarily" surrendering it is to keep the repossession costs down, therefore keeping your shortfall balance down.  There is no advantage credit-wise.

Even so, you are correct that the balance you owe on the shortfall will increase significantly.  First they have to get the car as mentioned above.  It could involve hiring a repo company (which they would not have to do if you bring the car to them), they have clean, detail, and inspect the car and sometimes make repairs.  Then they have to sell the car in a "commercially reasonable manner."  This is most likely at a wholesale or public auction.  There can be fees for that.  But perhaps the biggest dollar hit is the resale itself.  They typically will not get anywhere close to the blue book value of the vehicle.

Basically you take the current balance, add all those expenses and subtract out the resale of the car and that is the shortfall amount you owe.

You have few options if you can't afford the car.  You can try and renegotiate or refinance the car to extend the terms out and lower the monthly payment.  In general, creditors don't want the car back.  Still, they typically don't budge too much but you may be able to get some movement.  I would definitely call them before you give the car back to try and get better terms.

Bankruptcy is an option, but not a good one at this point.  If you are even thinking of that, you should absolutely wait until you see the shortfall debt and include that in the bankruptcy.

In general, the rules apply to the state you currently reside in.

I hope this helps.  I wish I had better options for you.  Good luck.

Regan

---------- FOLLOW-UP ----------

QUESTION: It does help, actually...thank you.  Do you know whether or not it's possible for me to renegotiate & then sell the car to a dealer?  Then they would get more money for the car than they would at auction, & I could maybe cover a smaller balance. If that's not a possibility & I end up having to turn in the car, what are their options in collecting the shortfall amount from me?  I obviously don't have the money.

ANSWER: Any contract can be re-negotiated or changed if BOTH parties agree to it.  It also has to be a WRITTEN agreement to change a written contract like a car loan.  So don't get yourself in a position where the only thing you can do is say "they TOLD me I could do this."  You have to get it in writing.  i would think they would be open to the scenario you mentioned if you can pull it off.

If you have a shortfall it becomes an unsecured debt just like a credit card.  They can sue, get a judgement or turn it over to a collection agency to do the same.  If a judgement is entered they can possibly garnish wages, attack bank accounts, place liens on property, and even confiscate personal property and sell it at auction.  No not all those collection techniques are available in all states and there are limitations in most cases, but it can happen.

If it gets repossessed, the best thing is either fight it if you receive a letter from a collection agency, or try and enter into a settlement paying a small amount a month.  This keeps it from getting to the point of court case where collecting it from you is usually easier.  Contact me again if it gets to that point - a notice from a collection agency.

Good luck,
Regan

---------- FOLLOW-UP ----------

QUESTION: Ok...negotiating didn't work...they said they're not a bank, & assured me that the payoff amount is a great deal (I should've probably mentioned that this is Americredit Financial...for anyone else that might be conned into using them by Toyota...RUN!!)  It's been almost four years, but my loan amount has only decreased by $3K...my credit wasn't really bad before this, but my old car & a recently sold house were still showing on my report at the time of this purchase...Toyota assured me that in six months, this company would refinance my loan (which they don't actually do...because they're not a bank).  Due to a pretty serious health issue, I can't afford to keep this car...what specifically can they do to me in Texas?  Also, going back to the $3K thing, I've repeatedly asked for itemizations of late charges/fees, & they always say they're mailing them, but of course, I never receive them.  When I called to inquire about my options for giving back the car, I was promised a call from a supervisor, which I never got.  Additionally, this company reposessed my car a year ago...unexpectedly.  It cost me a fortune to get it back & to date, it's showing as a repossession on my record.  PLEASE HELP!!  

Answer
Hi Jennifer:

I'm sorry you are in this situation and they won't negotiate further.  You really don't have a lot of legal options.  They have the leverage with the contract.

I think the bottom line is if you cannot afford it as you say you must resolve yourself to the fact that it likely will be repossessed.  The timing and terms you can control a little bit with some negotiated payments, hiding the car and things like that but it seems like the car will be taken.

Credit and debt wise, it's not necessarily the worst thing as we discussed in previous post.  You have better options through validation, verification, and credit repair after the car is taken - especially if it goes to a collection agency.  For example, if you think the accounting is off on the balance, it is a required portion of debt validation with a collection agency to provide proof of the payment history and how the amount they are trying to collect is arrived at.  If they don't provide this, it is a violation of federal law.

This is not to say bad things can't happen.  You can be sued for the shortfall.  However, it's cleaner in a bankruptcy to discharge the shortfall debt than deal with the debt while the car itself is still in play.

You need to keep absolutely every document related to this.  It will help in potential credit repair down the line.  MOST IMPORTANTLY, you MUST respond to any notice from a collection agency within 30 days of their first letter.

Otherwise your options while you have the car remain the same, continued negotiations, refinance options, or other methods to pay the vehicle or get caught up.  I wish I had better news on that front, but there is no magical answer.

Good luck.  I really hope it works out for you.

Regan
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