consequences of returning a car to bank?

[scottinalaska]

A buddy of mine is SO upside down on his beautiful Chevy Tahoe, that he is thinking of just taking the black mark on his credit report and calling the bank to come pick it up and mailing them the key.
His credit is impeccable, but his choices have been poor through some other bad circumstances - like buying such a car so early in a marriage!
Thus, anything he should be aware of?
Does the bank take the car and come after him for whatever is still owing after THEY resell it?
Does the composition of a "I'm sorry I can't afford these payments" kind of letter sent to the loan company help at all? And then tell them to come pick it up? I told him if he does this, keep up the insurance until they do pick it up.
Worst case scenarios? Likely scenarios? He lives 5 hours from Anchorage rather remotely, so he could reasonably NOT be able to drive it back in.
Well, new territory for me, but I know some of you have been here before. Chime in!
scottinalaska

[Bill Smith]

Does the bank take the car and come after him for whatever is still owing after THEY resell it?

Sometimes, well, OK, most of the time.

What your buddy should do is to call the bank and offer to turn the car back in, but also find out what the alternatives are. Sometimes the bank would rather have somebody making smaller payments than to eat the car themselves.

In the worst case, your buddy should try to sell the Tahoe with whoever buys it picking up payments.

Avoid the "VOD" and other nutcase remedies that will be suggested to you on this site, as they rarely work in real life and will only further destroy your buddy's credit rating.

[Judge Roy Bean]

Originally Posted by scottinalaska

A buddy of mine is SO upside down on his beautiful Chevy Tahoe, that he is thinking of just taking the black mark on his credit report and calling the bank to come pick it up and mailing them the key.
His credit is impeccable, but his choices have been poor through some other bad circumstances - like buying such a car so early in a marriage!
Thus, anything he should be aware of?
Does the bank take the car and come after him for whatever is still owing after THEY resell it?
Does the composition of a "I'm sorry I can't afford these payments" kind of letter sent to the loan company help at all? And then tell them to come pick it up? I told him if he does this, keep up the insurance until they do pick it up.
Worst case scenarios? Likely scenarios? He lives 5 hours from Anchorage rather remotely, so he could reasonably NOT be able to drive it back in.
Well, new territory for me, but I know some of you have been here before. Chime in!
scottinalaska

Several things:

How far upside down is he and how much longer is the loan for?

What company is the loan through? The letter may fall on deaf ears, or if it's a credit union he may even be able to refinance it.

To avoid dinging his credit with a repo, he could sell it for whatever he can get, then throw in enough of his own money to make up the payoff difference.

He will still owe the difference between what they claim to sell it for (at auction - repo expenses, etc., etc.) and what he owes on it. They can, and will come after him for the balance if he just walks away.

The way the car dealer finance game is played, he could also swallow his pride and take it back, trade it in for something used and far less costly but he may still be stuck with a lower payment and end up upside down again in the not-too-distant future. It's a matter of deal-making.

It sort-of depends on how much business the dealer thinks they can do with him in the future. Car dealers (mainly through financing) and everyone in the food chain make more on the sale transaction than they do off the car itself, so they like volume, repeat business. Dealers typically markup 3-4% on top of whatever the finance company actually carries.

If he's that far away from the dealer, you can bet he's probably that far away from any court he'd have to appear in to fight them. And he'd be there more than once on his path to losing. And the end result is he'd have a repo on his credit.

[scottinalaska]

How far upside down?
He owes 45K for a 30K car. He traded in a bad decision truck on it and got more upside down, but got a nicer vehicle. Duh, his wife knew the truck was bad money, now she is really frustrated!

He doesn't mind a repo on his record if he can salvage his family as they are drowning more every month. His payments are a crazy 700 bucks a month.
He isn't trying to VOD it either, Bill.
He just wants out with limited hassle(no more cash out).
IS THIS possible? He'll take a black mark.
Oh, the loan is with a bank, not the car company.
scottinalaska

[Judge Roy Bean]

Originally Posted by scottinalaska

How far upside down?
He owes 45K for a 30K car. He traded in a bad decision truck on it and got more upside down, but got a nicer vehicle. Duh, his wife knew the truck was bad money, now she is really frustrated!

He doesn't mind a repo on his record if he can salvage his family as they are drowning more every month. His payments are a crazy 700 bucks a month.
He isn't trying to VOD it either, Bill.
He just wants out with limited hassle(no more cash out).
IS THIS possible? He'll take a black mark.
Oh, the loan is with a bank, not the car company.
scottinalaska

Family comes first - but a voluntary repo isn't as bad as having the additional collection expense they'll stick him for.

Even if he does that, the lender will still come after him for the balance. They'll take the vehicle, auction it (wholesale) and ding him for the rest.

If it's a cash-flow issue, can he find someone to take the truck and draw up an agreement for them to make 50-75% of the payments with him making up the balance for some period of time?

Think outside the box.

[scottinalaska]

Hmmm, how does the bank ding him for the rest of the money? Do they attach liens through a court order to his bank account or property? He owns none. His bank account is small. But he is employed. Will a judge grant garnishment in this case.

Anyone else want to chime in and also say he is doomed to pay...or is there another way?
scottinalaska

[Judge Roy Bean]

Originally Posted by scottinalaska

Hmmm, how does the bank ding him for the rest of the money? Do they attach liens through a court order to his bank account or property? He owns none. His bank account is small. But he is employed. Will a judge grant garnishment in this case.

First, the "bank" is owed the debt regardless of the disposition of the vehicle. Their interest is to have someone recover it, push it through the wholesale market (typically an auction) and get what they can get. What's left over is still debt.

The laws vary from state to state on judgment recovery via wage garnishment. In some situations the lender just sells off the debt to a sleazy collector to file suit and get a judgment. In others they do it in house. It's an economic decision. If your friend owes them $100 after the sale (which I think is unrealistically low), they may not bother with it but will note that the balance is still owed on his credit report.

If the number gets significant - let's say $5,000, they may sell it off to a collector for $2,500 and write off the rest as a loss. Then they're out of it.

If it is really up there, say, $10,000, they'll first pull a credit and asset report to find out if your friend has any real property laying around that they can attach through a judgment and determine what his & her income is.

If as you say, he has no "real" property, just an income, they'll defer to a local attorney to play the game the way Alaska's laws work. If memory serves the citizens in the state get a check every year for the oil business that goes on up there. Don't know for sure if they still do that, but that would be one of the places they'd look if the law lets them attach or garnish those like they do for taxes.

I still recommend he try to strike a more creative deal with someone who needs a truck and is willing to take over the payments, even if he has to throw in a couple of hundred a month for the deal.