Expert: John Hall - 12/27/2005

Question
Mr Hall,

In August of 2005 I bought a 2004 Trailblazer that I am now about $6000-10000 upside down in. I thought when I bought the car that I could afford $500.00 per month but now realize that I can not.  My plan is to go ahead and buy a MUCH cheaper car while my credit is good and then turn in the Trailblazer if I can't sell it in a private party add. If I can sell it I plan to get a loan to cover the difference.  What do you think? I can hardly afford to pay the power bill. By the way, I am not late on my payments yet.  

Thank you for your advise.

Answer
Ms. Griffith:

Consider this -  

FIRST, buy another car using the good credit that you have -  and you would want to finance as much of it as possible so you had very little if any equity in the car after you drive off the lot.

SECOND, if you are otherwise eligible (based on facts that you don't state in your question), file for protection under Chapter l7 of the Bankruptcy Code.  You then surrender the vehicle to the finance company or bank that financed it (usually you just tell them you intend to surrender it and you may end up actually keeping the vehicle for a couple of months before they actually come and get it), and you would owe nothing on any deficiency that would otherwise have arisen – that would be discharged in the bankruptcy with a minimal effect on your credit.  That is the most efficient way to do it in terms of maintaining what you can of your credit standing and immediately getting out from under this burdensome debt for the upside down 2004 SUV.


If you give up the vehicle, either voluntarily or involuntarily, the result will be the same.  Your credit will take a hit.  If you voluntarily surrender the vehicle, the creditor will not list it as a positive -  you can count on that.  Selling it for substantially less than what you owe isn't going to do you much better.  You're still stuck with the note, and on top of that the vehicle will still have a lien on it, unless you get the finance people to finance the whole thing, but then you're out  the amount of the deficiency which doesn't do you much good.   This is not a very good option.

If you do nothing this is not a very good  option either.  The finance company or bank comes and repossesses in accordance with their security agreement and lien.  They sell the vehicle wholesale and you get stuck with a deficiency debt (and possible judgment if they sue).

Insofar as filing bankruptcy goes, assuming that you otherwise qualify (I can't say for sure without knowing more specific facts of your situation that you don't give in your question), you would end up keeping the vehicle for a month or so and you would not be liable for any deficiency.  The negative (from the bankruptcy) would not be as bad as you might think, especially with your otherwise good credit.  It is not likely you would lose anything (depending on facts you don't state in your question), you would have all credit cards and medical bills and other unsecured debts discharged, and you would make a fresh start (without the burden of the vehicle.   You could also reaffirm the debt for the new car and keep it since you wouldn't have much equity in the vehicle since you just bought it.   Your credit would be consistently positive with one negative (the bankruptcy) and as soon as you get your discharge (about four months after you file, you would have good enough credit to get new credit cards or buy another vehicle (assuming you otherwise make enough money to do so).    After a year or so with the bk on your record, you can even get a mortgage on a house.  Good credit is sometimes overrated when it comes to getting what you want.    The key is good income and a low debt to income ratio.  It is better to have bad credit and good income than it is to have good credit and no income.  The credit grantors will look past your credit to your wallet.  

In any event, negatives in general remain on our credit for seven years, and bankruptcies for ten -  but many many times people with bankruptcies on their credit during that ten years end up getting to be able to get the credit they need.  The key is the income factor -  not necessarily one negative entry whether it be for bankruptcy or anything else.  

Insofar as the costs of bankruptcy goes, that can be minimized as well.  If I did it for you, I would sign off as the one that prepared your papers and not as your attorney (because I am not licensed to practice law in your jurisdiction).  There is a provision of the Bankruptcy Code that allows this.  I would indicate that I have a law degree but that I am not licensed in your state -  we would disclose everything up front.  You would have to go to one hearing that would last about a minute or so.  (At the hearing the trustee (who is either an accountant or an attorney, not a judge) just looks at your papers and asks if everything is true and complete and correct.    He or she may ask if you are expecting to receive any sums of money in the near future, and he or she may ask you about me (having prepared the papers).  You just tell the truth.  Sometimes (rarely) creditors will show up, but they can only ask about things such as whether you want to reaffirm the debt (take them out of the bankruptcy).  Creditors don't usually show up (because there isn't a whole lot they can do about your bankruptcy) and the hearing is over after a minute or so.  Then you wait no less than 60 days (usually about ten weeks) and you will get your discharge in the mail.  That's it.  There is a provision of the new bankruptcy code changes that allow you to apply for the filing fee (274) to be waived, or you can arrange to pay the filing fee in installments.    Also under the new rules you will have to deal with a debt counselor on the phone or on the computer for about an hour and they will charge you about $50.  This is more of an inconvenience than anything else -  not a major problem.  Same thing before you get your discharge.    If I did it for you I would charge you $100 to prepare your papers.   If you have any more basic questions, if you go to the site allexperts.com and  put the words “bankruptcy” or “bankruptcy attorney” in the box, when you see my name (John Hall”) click on my name and you can see where I have answered several questions a day over the last several years.  There are also some frequently asked questions and answers there.


Call me if you like.  I will not charge you just to talk on the phone.  If you send me an email with your telephone number I can call you and save you the long distance charges.  My email is J_H14@hotmail.com