Options other than repossession?
February 23, 2009 12:19 PM   Subscribe

My friend lost half his job (down to 20 hours a week from 40, and this is after a pay cut), and is about to lose his truck. I don't want his credit ruined. What are some options outside of getting it repossessed?

He's upside down on the truck and is ready just to not pay the bill for a few months, and use whatever he can scrape together to buy a clunker when they finally get the truck. I feel like there's got to be a better solution than ruining his credit.

I'm not sure how upside down he is, but let's assume not that badly. Are there resources/sites for having someone take over the payments on a vehicle that's already partially paid off?

How does one sell a vehicle for less than you owe on it? Do you have to take out another loan for the entire price of the car (what you owe) with the promise that you'll give the bank the bulk of the money when you sell it? (And you have the seller already at the ready.)

Is there anything else to be done?

(P.S. I know there are other repo questions on here, but they're all so specific--just like this one.)
posted by faunafrailty to Work & Money (12 answers total)
I should have mentioned: He is looking for another part-time job. This question is just in case he doesn't find anything quickly.
posted by faunafrailty at 12:30 PM on February 23, 2009

Has he looked into unemployment as a means of supplementing his income? In some states a loss of hours can qualify you for benefits; you don't have to lose your entire job.
posted by bizwank at 12:30 PM on February 23, 2009

Talk to the bank or whomever is holding the paper on his loan. Explain the situation in plain English. They will likely attempt to work out a payment plan or refinance the truck at a lower monthly payment than what he's at right now.
posted by Cool Papa Bell at 1:05 PM on February 23, 2009 [1 favorite]

Yeah, a notable reduction in hours can often qualify as "constructive unemployment" and he should look into it.

He should also, if he hasn't, discuss this with his lender. Particularly if he's underwater it's in their interest to cut a deal.

To answer the question more directly, he will not be able to sell the car to someone else without satisfying the current loan on it. The bank has a lien on the title - and in some states will actually retain physical possession of the title - and it will not be transferable to someone else until that lien is released.

So selling it for less than what is currently owed isn't going to be possible unless he can pay the difference or the bank agrees to make him a loan for the difference.

The problem here isn't just one of trashing his credit - which should be the least of his worries at this point - but the fact that while a car loan IS a loan secured with collateral, it is usually not one that is fully discharged if the collateral is repossessed. I don't know the legal term for this off the top of my head, but it's different than a home loan where you might be able to walk away from the deal without being pursued for the difference between market price and the sales price of the auto.

So simply allowing repossession may not be the best solution to his problem - he could be without transportation and on the hook for the difference between the loan amount and whatever they get for the car at auction. If he's saddled with other debts he may need to consider bankruptcy protection, which in some states has provisions that will allow him to make a deal where he can keep the car.
posted by phearlez at 1:41 PM on February 23, 2009

Most finance companies I've dealt with (credit cards, vehicle loans, student loans) are willing to defer payment for up to 3 months or so in times of unemployment (interest still accrues though).

I don't know how much they'd be willing to do in the case of underemployment.

How does one sell a vehicle for less than you owe on it?

If it's that far upside down, even if you can find a sucker willing to buy it the finance company will most likely not allow transfer of ownership. Been there, done that.
posted by Ziggy Zaga at 1:43 PM on February 23, 2009

If it's that far upside down, even if you can find a sucker willing to buy it the finance company will most likely not allow transfer of ownership

Actually, let me retract that somewhat-- in my cited previous experience, we did end up finding someone who was willing to pay for the horribly upside-down car. The car company would not allow the transfer of ownership without what essentially amounted to refinancing the thing under the proposed owner's name. Given the proposed owner's even worse credit and lack of down payment, it was not possible to transfer ownership-- they simply would not approve new terms. We ended up "sub-leasing" the car, where the proposed owner makes the payments and drives the car even though the car is still registered to the original owner.

This requires that the proposed owner share an insurance policy with the registered owner, so there are some huge liability issues, but we haven't found any insurance carriers that allow you to take out an individual policy on a car you don't own.

The point is, it's hard to sell a (badly) upside-down car unless the person you're selling it to has good credit and little sense.
posted by Ziggy Zaga at 4:08 PM on February 23, 2009

Maybe you personally could offer a sort of revolving loan to him? Do it up legal with a lien against the truck (useless at the moment, since it's upside down and not paid for, but of potential use at a later point should it become paid off and you don't get your money back). You could do it for no interest as a favor, or with a small amount of interest if that's what you guys prefer.

Supposing the payment is $600 a month, and all he can scrape together at the moment is $300 a month, you kick in the extra. As he starts making more money, he can pay you back. He can't sell the truck until he satisfies your lien.
posted by gjc at 6:01 PM on February 23, 2009

Talk to the lender about doing partial payments for a period of time.
posted by dagnyscott at 6:08 PM on February 23, 2009

Thank you for all your advice. I should have put a little more info in here.

1. I have offered a loan of 1-2 months car payment while he gets back on his feet (i.e., gets unemployment or a p/t job), but he says he doesn't want it.

2. He has applied for unemployment, but he's just so darn broke even with it, he'll be barely living off ramen if he keeps the truck.

3. He has talked to the lender. They shut him down. No offers of giving him a few months leniency.

The problem is, he's kind of a fatalist. I know he's resigned himself to losing the truck and ruining his credit, and is even looking a tad forward to it as he'll no longer have a car payment, a gas guzzler or costly insurance, even though he says he's bummed about losing his good credit. And to his defense, I'm fairly positive he's doing everything he can to save money (eating cheap food at home, taking a roommate, getting rid of his cell phone), but it's just not working.

I was just hoping I might find a solution through the hive mind that could change this course, but I'm not sure there is one.
posted by faunafrailty at 6:33 PM on February 23, 2009

Letting someone with bad credit informally and privately sublease the car IS a an option though very much one of last resort. I know of two deals like this that worked. They make the payments (you give the payment book AND arrange to have them call when they've made the payment each month. A few days late and YOU repo back the car and they loose any 'equity' they may have built up.) They must provide insurance. In Hawaii, insurance companies don't care or at least check who the lien holder is just as long as the vehicle is insured so a 'private' sub-leasee could get insurance in their name on a bank owned vehicle. The lien holder doesn't seem to check either that the name matches either just as long as there is an active insurance policy in place for the car with the state minimum requirements. Of course this is a last resort and the bank lien holder would not approve of this if you told them but it can get the car paid off. People with compromised credit are willing to pay the premium and may even catch up the payments as an additional premium to get into the deal. To find a candidate just advertise a take over payment deal in the paper and your respondents will propose to make the payments in this manner. You will need to proceed very cautiously and vet the right person but there are people worthy of the risk. Very risky but doable if the thought of repo is unaccaceptable to you. You really do need to leave the lien holder and the insurance company out of the loop. This is 'underground' stuff you realize. You will have peoplle tell you not to do this but it can work.
posted by Muirwylde at 7:17 PM on February 23, 2009

Your friend may want to consider bankruptcy, wherein he has some options. He can cram down the debt to the actual avlue of the vehicle and then pursue redemption of a secured asset (using financing from firms that specialize in this). Or he could see whether his 20 hours is enough to finance a Chapter 13 repayment plan with his loan interest reset to around prime + 2%.

I think this is a reasonable course of action in that his credit is ruined either way, but this way he has a newish truck instead of a clunker. He may have other debts he can shed/repay at lower rates in the bankruptcy as well.
posted by dhartung at 9:29 PM on February 23, 2009

My son stopped making payments on his car 18 months ago. The bank who did his financing didn't come to repossess the car for a year.

His original loan was for around $20,000. When it was repossessed, the car was worth around $11,000, and his balance on it was $18,500 or so, leaving him supposedly "upside-down" to the amount of $7500.

A few months ago, he got a letter from the bank. They had resold the car for a much lower amount than it was worth, and together with the repossession fees, he ended up owing over $12,000.

As far as I know, the only way for him to get rid of this debt (other than paying it) is for him to go bankrupt.

Just thought your friend should plan on being extremely upside-down if/when the vehicle gets repossessed.

I would second the bankruptcy option recommended by dhartung above. There are very effective ways to deal with this kind of debt thru bankruptcy, and if done smartly and carefully, bankruptcy can be done without hiring an attorney. I know, I've done it.
posted by dwbrant at 6:18 AM on February 24, 2009

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