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There’s no debt relief with repossession

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Dear Debt Adviser,
About one and a half years ago, we had our boat repossessed. We then received a letter in the mail telling us that we had a balance deficiency of an extremely large amount. We then called to see what we could do to fix this and the creditor said it wanted all the money. We told them we did not have that kind of money. We were told to get a loan to pay this debt off, but with a recent repossession, that was impossible. We considered bankruptcy, but it just didn’t seem right. We just wanted to be done with this debt, and being stupid and wishing it would just go away, we did nothing. Now after one and one half years, they want their money. We have asked to pay the debt in installments, but they won’t even consider it. What can we do to repay them to make them happy? We can’t pay it all back; there is no possible way. We don’t have anything. Everything we make goes to paying bills and buying food. Please, we need advice. Thank you.
— TJ

Dear TJ,
“Being stupid” is not exactly the phrase I would have used. You sound young and inexperienced with debt, plus you sound like you want to do the right thing. Unfortunately, the right thing in your case may not be easy or inexpensive. On the positive side, it will be a learning experience that may keep you out of a worse situation later.

Let’s start with the deficiency letter you received.

It is a common misconception that when a car, boat or recreational vehicle is repossessed, the loan for said item is void or otherwise no longer valid, and that’s the end of the story. No way, TJ! What typically happens in repossession is that if the debt is not paid quickly, the item secured by a loan is sold at auction. The sale price of the item is applied to the loan balance minus any expenses. In many cases, the sale price doesn’t cover the entire balance owed. The remaining debt is called a deficiency balance, which you still owe.

For my readers who may be contemplating allowing a car to be repossessed, you may be better served trying to sell it first and coming up with the difference owed through savings, a loan (before your credit is damaged) or by earning enough extra money by working overtime or a second job to pay your debt.

Now for your debt dilemma. First off, don’t waste any time trying to make the creditor happy. They don’t want to be happy; they want their money. You can only do your best, which is offer the monthly amount you can afford to pay. You are communicating with the lender rather than ignoring it, and you’ve said that you cannot make a full payment. While the creditor considers its next move, be sure to set aside each month what you offered to pay in case the lender changes its position or wants to settle the debt.

In addition, I recommend that you watch your mail for a court summons. It’s common for a creditor to sue in court to set the stage for future debt collection options. If you get a summons, show up in court. Bring your records, pay stubs and a budget to substantiate your efforts. I strongly suggest that you consult with a well qualified attorney. The lawyer can give you the best advice on your legal options. It sounds as though the creditor may come away with a judgment for the amount owed plus court expenses. The judgment can be used to garnish your wages, levy your bank account or place a lien on your real property to fulfill your debt. Federal and state laws apply for garnishments and levies.

I don’t know how much you owe, but if you are as young as you sound, I encourage you to earn some additional money, have a yard sale and slash your spending to the bone to pay your debt. I think you are right to avoid bankruptcy if possible. I’m less worried about your credit than I am about the effects of a serious failure to live up to your debt obligations going forward.

Good luck!

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