What Are Our Options to Avoid Car Repossession? – Allen


“Dear Steve,

This is a terrible auto financing dilemna. My fiance traded in her car for a new used car intending to obtain a disability insurance policy. She had had some recurring health issues and wanted to make sure nothing chronic became disabling, which would heavily impact her finances.

Considerate action … but (2) problems …

1) To make the purchase she assumed “some” negative equity – roughly $7K.

2) CarMax did not have affiliations with a finance group offering disability insurance

Regardless – She bought the car, made the trade-in, assumed the negative equity, did not obtain a disability insurance policy on the new used auto financing, and drove the vehicle home excited that she had “upgraded” into a nicer vehicle that she “felt better about making payments on”.

3-4 months passed.

Her health conditions did not get better. She had bigger concerns and regarded her symptoms as being more chronic and non-responsive to suggested treatments.

So what did she do?

On a “good day”, she decided to go speak with car dealers about the prospects of trading in her car in order to get into a new used car deal that offered her disability insurance on the auto financing. Again – her actions were out of consideration to protect her finances – but instead she “luckily” found a dealer (after two unsuccessful attempts) who would allow her to trade in her vehicle and obtain a disability policy with an affiliate underwriter IF she “traded up” into a more expensive vehicle which would allow the lender to offer more access to finance funding. The extra funds were necessary to assume the negative equity of the initial car trade-in and NOW the additional assumed negative equity resulting from the current vehicle trade-in. YIKES!

This time she obtained a disability policy for the car loan.

Unfortunately – the car she now drives is worth a little LESS than 1/2 the fair market value of the vehicle. And she now owes $40K over 7 YEARS! Monthly payments are close to $800/month.

Given her employment, she could afford to make payments on the car, but unfortunately (you guessed it) she is now deemed DISABLED by several of her doctors.

She has gotten some of her short-term disability income started and looks to receive long-term retirement or something soon. The situation is bad b/c there will be no way that she can maintain making payments on this $40K vehicle until she is able to go back to work successfully employed in the same capacity/same salary.

The disability insurance company has been contacted. The account has been reviewed and the papers are now being passed along to their “legal” department for final review.

Our biggest concern now is that they will not honor the policy and she will be stuck with no assistance to pay car payments. In turn, facing repossession and serious credit DAMAGE.

She’s spoken of just giving them back the car and trying to make payments on the balance difference after they sell the car at auction.

I have strongly adviced against this … I am now taking the wheel to try to help her as much as I can. I know this is not a favorable position at all.

What are our options (best to worse in your opinion) to avoid car repossession if the disability insurance company does not pay monthly payments while she is out of work?


Dear Allen,

What a mess this is.

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If I read your situation correctly your fiance went car shopping knowing that the chances were pretty good that she’d not be able to repay the car and need a disability policy anyway. When she found a car and discovered the dealer did not offer disability insurance she purchased it anyway, and there is where the downward spiral began.

Two negative equity car purchases latter she is left owing $40,000 on a car that worth a whole lot less.

I guess where I’m stuck is that committing yourself to a financial liability and trying to obtain coverage for an event you know is coming is problematic at best. I would think that the insurance company would ferret out the fact that she was ill when she purchased the car and thus had an expectation that she would need the policy to pay off. It’s a bit like the whole preexisting condition thing.

If the disability company does not pay, you have little to no options here. You have a valid sales agreement and finance agreement that wraps up your negative equity, holds the car as collateral and has a defined monthly payment.

The possible solutions would be to pay for the car in full, give the car back, negotiate with the lender to adjust the sales contract or go bankrupt.

But the reality is that if she does not make the payment as agreed then this is not going to end well. It might even result in her turning the car back in and going bankrupt to discharge the big bill they will come after her for, and they will.


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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.
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