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I’m Upside Down on My Car. How Can I Get Out From Under It? – Bill

“Dear Steve,

My wife and I have a car that we are in desperate need to get rid of. I currently owe about $13000 for it still, but it is really only worth about $5400 according to KBB and the Car Dealership we are working with to try and get a new one.

After the dealer has run their numbers and our current credit history which isn’t that good. (high 500’s) I am just at a point where I just want to get rid of it. The car needs some work, new tires, new windshield wiper arm, and the check engine light it on. All the repairs will cost over $2500 and even with all the repairs the car will still not warrant a price of $13000 to be free and clear of it.

The dealership in which we are working is willing to work with us in getting a new car, but with the potential trade-in of my current car, it just squashes the deal and would certain make my payment completely out of reach. They will, however, work with us if I just look at buying the car without my current car as a trade-in. We only need approx. $1000 down to start the deal, which we can get in the near future. So my wife suggested that I look at “voluntarily repossessing” my car.

Of course I’m very hesitant to do that, but we are just drowning in my current car. Plus it’s not legally ready to be on the road. Now I drive it anyway, because it’s all I have right now. What I’d really like to know is “what are my options” and “how will this look on my credit report going forward”. Now I know it’s not the best of credit scores, but I am trying to build my scores up. We both would like to buy a house within the next 3 to 5 yrs. But with a repossession on my credit report and that lasting approx. 7 years how will that hurt me? I have tried looking into a family member buying the car from me, so as to release that burden, but that has had no luck.

Bill”

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The Answer

Dear Bill,

The underlying issue here is that even with giving the car back in a voluntary repossession leaves you in the hole. With a voluntary repossession the lender will take the car back, sell it for pennies at auction and sue you for a deficiency judgment for the difference between the current amount of the loan and the $2,000 they will probably get at auction.

Rolling the car into a new car deal doesn’t make any sense either since you are just financing an underwater car into the future and that will cost even more.

So, of all the options, repairing the current car is the least expensive alternative. Or, you will probably have to finance a new car, go bankrupt to avoid having your wages garnished for the deficiency judgment they are going to get against you and then work to improve your credit after your bankruptcy.

No matter what, if you want to start getting yourself in shape to buy a house you need to deal with this situation, then work on building good credit, and make sure you can save money for a down payment on a new house.

With a credit score in the high 500s you already have D- credit so that tells me there is already past negative credit activity or current debt you can’t handle. Correct?

Big Hug!

Im Upside Down on My Car. How Can I Get Out From Under It?   Bill
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About Steve Rhode

Steve Rhode
Steve Rhode is the Get Out of Debt Guy and has been helping good people with bad debt problems since 1994. You can learn more about Steve, here.
  • monique

    Hello, my name is Monique and i’m just curious to know,
    All the bills are in my husband name and he pays all of them by him self. He currently has a 86 pontiac and got me a 09 chrysler(also in his name). I make $9.50hr with 40hr week, Well he wants a 2011-12 camaro and the dealership saids i can do it they even suggest that since i wanted a malibu the last time i came i could trade the chrysler for a malibu and put the down payment towards both cars. What do you think i should do? Is this a smart decision?
    P.S. we owe 15,000 on the chrysler and pontiac is paid off(just too Old)
    Camaro-$25,000 and Malibu-$18,000

  • monique

    Hello, my name is Monique and i’m just curious to know,
    All the bills are in my husband name and he pays all of them by him self. He currently has a 86 pontiac and got me a 09 chrysler(also in his name). I make $9.50hr with 40hr week, Well he wants a 2011-12 camaro and the dealership saids i can do it they even suggest that since i wanted a malibu the last time i came i could trade the chrysler for a malibu and put the down payment towards both cars. What do you think i should do? Is this a smart decision?
    P.S. we owe 15,000 on the chrysler and pontiac is paid off(just too Old)
    Camaro-$25,000 and Malibu-$18,000

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  • Bill

    I plan on repaying the balance that would be left after they auction it off, but we have two children and DESPERATELY have a need for two vehicles immediately. I can no longer legally drive my car and we are in a pickle. Yes, repairing my car is the cheaper alternative, but we do not have $2500/$3000 to fix it. Also didn’t point out that just b/c I may voluntarily repo my car I still you have NO intention of ignoring my obligation to the car. I will still pay them for what is owed. Could they still sue even if I setup a payment plan with them? As far as my credit rating how long will a repo be on my credit report even after I pay them back. I have seen that a repo would be on my credit report for 7 years, but I certainly would be able to pay it back before that.

    • http://GetOutOfDebt.org Steve Rhode

      Bill

      even if they would take a payment plan the judgment will contine to earn interest. I did not see a logical way you coul repay on the old car, pay for a new car and save money in an emergency fund to avoid similar cash flow problems in the future.

      The default will be reported for seven years from the time of the default.

      You might want to look at LendingClub.com and see if you might qualify for the loan to repair the car.

      Steve

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