Do you owe more on your vehicle than it’s worth so you can’t sell it or refinance? Are you paying too much every month but no way out? Bankruptcy fixes that problem.
I’m MN Bankruptcy attorney Andrew Walker and I help people escape the debt trap from car loans and truck loans.
When you owe more on a vehicle than the vehicle can be sold for this is called underwater, and you only have a few options to say goodbye to that loan, most of them bad.
Option 1: Voluntary surrender
This means you stop paying and they come and get it or you give it back. The loan company will sell the car for cheap and then sue you for whatever portion of the loan didn’t get paid by the sale. This is often a $10,000 lawsuit against you AND it goes on your credit report as a repossession.
Option 2: Trade it in and get new car with a new loan on it
This seems like a good idea, but you will get EVEN WORSE NEGATIVE EQUITY on the new car loan because they stack the old car loan ON TOP of the new car loan so you owe more than the new car is worth before your first payment. The vehicle is underwater immediately, but the loan balance will be even higher and the monthly payment will be even higher so now it’s worse than before.
Option 3: Pay the loan off
If you have the money, then this is an easy way out of the situation, but don’t borrow from friends or family members until you hear about option 4!
Option 4: File bankruptcy!
This is where I come in. With chapter 7 you can use the vehicle for 3 months without paying on it, then give it back to them and it won’t show up on your credit report as a repossession. In Minnesota, you will get lots of offers for new car loans, and we can even point you to some reputable dealerships. The car you buy AFTER bankruptcy will have a loan balance that is the same as the price of the car, NOT more. Surprisingly, the interest rate won’t be as bad as you think because the bankruptcy will most likely have improved your credit score by then (assuming your score was bad to start with).
Let me say it again. Bankruptcy means you get to stop paying the vehicle note NOW, use it for a few months without a payment, and then buy when your credit score is better. Most of my clients have a credit score of 720 after 2 years, and the score usually goes up 30-50 points the week after filing.
Option 5: Chapter 13 bankruptcy
Watch my next video for how this works. It can even lower your interest rate!
If you live in Minnesota, then click here for a free attorney consultation.