Can’t Afford Your Car? DO NOT, DO NOT, return the car to the dealership.

I have seen a lot of clients recently who have had to file bankruptcy because they turned their cars in to the dealership.  They expected that this it would be a solution to the problem of a car payment they could not afford.  Nope.  Big, big mistake.

Turning in a car to the dealership is, for legal purposes, exactly the same as a repossession.  The dealer goes through the same steps.  The dealer takes the car to auction and sells it — usually to themselves — for way less than the amount of the outstanding loan.

The remaining loan balance — known as a deficiency — is usually the subject of a lawsuit against the borrower.  Most of the time, the borrower does not bother to contest the lawsuit. (There are few legal defenses to the lawsuit on the deficiency anyway.)  The result is a judgment against the borrower, often for tens of thousands of dollars.

The borrowers then end up in my office when they get notice from their payroll department that they will deducting 25% of their “take home” pay and turning it over to the lender who is enforcing its judgment.  At this point, bankruptcy is the only option.

It’s sad (if I may borrow a line from Mr. Trump):  The borrower has lost his or her car and is now having to fork over 25% of their pay to the lender, too.

The best solution is to imagine a worst-case situation and buy only as much car as you can afford if your income drops.  (By the way, dealers, unlike mortgage lenders, don’t really qualify anyone for a car loan from what I  can tell.  They’ll put you in any car you want, knowing they can repo and put the car back on the lot for the next victim.  They make most their money on the financing!)

If you’re in over your head, try to sell it — even  if you have to pay down the loan to release the lien.  It  may be cheaper than a large deficiency for tens of thousands of dollars and a garnishment that leaves you with not enough money to buy groceries or pay the rent.

If you need help, call us.  There is no charge for a short telephone consultation.

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