Creditors and Bankruptcy/Settling Bad Car Loan

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Expert: Regan Shinski - 1/20/2010


Question
I have a 5 year loan on a 2001 car. The car itself is worth around $1000 and I have a loan balance of $3500. I'm currently unemployed and living overseas. The car is parked at a relative's house and will be there for 2 years or so because I'll actually end up being overseas for a while. I'm sure the repossession people are looking for the car but of course cannot find it because it's parked in a garage.

I have very limited income and simply cannot afford the car payments. I think, however, that I may be about to scrounge up around $1500 from a loan from a relative.

My question is, do banks ever settle car loans? If so, would they still take back the car or would I keep it? I know my credit would be messed up but that's the least of my concerns right now. I'm just trying to avoid bankruptcy and settle my debts."

Answer
Any bank COULD settle ANY account for virtually ANY terms, however most larger banks will not settle an auto loan without taking back the vehicle first.  If it is a smaller bank or private lot, your chances are better.

The usual process is for them to take back the car, sell it, and then go after you for the shortfall.  That shortfall amount is often negotiated down.

With the amounts being fairly low - for a vehicle price - I think you have a slightly better chance than most of getting a settlement and still hanging on to the car.  However, that is still likely an very uphill battle.  It does avoid a repo on the credit.

A cleaner route is to work with them on selling the car as a short sale, or just giving it back and settling the shortfall.

You may run a small risk of the vehicle being reported stolen or lost if significant time goes by without them hearing from you or receiving a payment.  They can also slap expensive insurance on the vehicle if you don't.  They can check databases to find out if you have insurance or not.  If you don't keep insurance, they will write a policy.  This is usually expensive and could turn that $3500 into over $10k easily in two years.  

Good luck, I hope this information helps.
Regan

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Regan Shinski

Expertise

I can answer questions on collections, repossessions, bankruptcy, credit repair, credit counseling, FICO scores, credit planning, and the cause and effect of credit related decisions. I can also answer questions on collection settlements and preparing to sue your creditors for false debts and credit reporting.

Experience

Fifteen years ago I was financially devasted due to severe health issues. I filed bankruptcy, had a foreclosure, car repossession, tax lien, and ruined credit. I immersed myself in credit law. I settled dozens of accounts and had them removed to improve my credit. I personally sued four creditors and collection agencies and won cash settlements for their false reporting on my credit reports. Since then, I have completely recovered and have nearly $100,000 in revolving credit lines and perfect credit. I have owned a credit repair company for the past five years and have an additional three years of specific work in the collections and debt management industry. I am fully versed in the Fair Debt Collection Practices Acts (FDCPA), Fair Credit Reporting Act (FCRA), and have used them successfully in collection settlements and lawsuits for myself and others. I am also familiar with and abide by the Credit Repair Organizations Act (CROA). I have deleted or helped delete literally hundreds and hundreds of derogatory items from consumers' credit reports and helped negotiate many settlements with collection agencies and creditors. I have also advised people on bankruptcy at any stage. In the current credit market, I have successfully advised numerous people on how to obtain credit and how to negotiate for better terms.

Education/Credentials
BA - University of Minnesota

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(private)

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