||Ask Dr. Don
Repossession choice: one car
Dear Dr. Don,
I am faced with a dilemma. I've come
out the other side of a technology layoff with a decent job, but
I'm not making the money that I used to. I am in two car loans but
cannot afford both vehicles. I am too upside down in the notes to
sell or ask someone to take over payments.
My choices are: 1) Voluntary repo of one vehicle,
while I stay in the other at a moderately high payment. Along with
the car payment I would have a deficiency payment to the lender
of the repo'd car, or 2) Voluntary repo of both vehicles and (with
help of family) get into a cheaper car at a reasonable payment given
my present salary. Even though I would have deficiency payments
on two vehicles, I know I could make the lower car payment no matter
my employment circumstances.
So which is worse, one repo or two, or does it even
Voluntary repossession sounds more civilized, and it is
a better approach than a repo man taking your cars away in the middle
of the night or at work. A voluntary repossession saves you the
embarrassment of having your co-workers or neighbors seeing your
car(s) taken away, and keeps you from having to reimburse the lender
for the repo expense.
State laws vary concerning your rights in a repossession,
but the lender is typically obligated to notify you of his plans
to sell your car and the lender has to try to get a commercially
reasonable price for the car. The car's wholesale price at auction
should be sufficient to satisfy that obligation. You would also
have to pay the lender's costs in arranging the sale.
With enough money at risk the lender is likely to
sue for a deficiency judgment against you for any shortfall on the
loan plus expenses. (Some states don't allow the lender to sue for
a deficiency judgment on an auto loan.) A judgment will show on
your credit report along with the repossession(s). After that it
won't much matter whether you have one or two repossessions on your
Here's the part of your plan that I don't understand.
If you plan on making the deficiency payments on the car(s), how
is repossession any better than selling the cars on your own? The
only benefit is that it allows title on the car(s) to pass to the
new owner without you having to come up with the shortfall to sell
the car. You're paying a steep price for that benefit, especially
if the lender can force payment on a judgment through either garnishment
of your wages or with a levy against your personal property.
Bankruptcy, using either Chapter 7 liquidation
or a Chapter 13 repayment plan, could be a better approach than
voluntary repossession. Review your state's bankruptcy laws, or
consult with a bankruptcy attorney, to see how you might fare in
a bankruptcy filing. Any repossessions or judgments will stay on
your credit report for seven years, just like a Chapter 13 bankruptcy.
-- Posted: June 13, 2002