Voluntary repo

[Anonymous]

My son has a 2005 Dodge Magnum purchased in March of 2008 for 14,500  His payment is around 450.00 a month to date he has paid 25,400 to SanTander Finance his balance as of 02/05/2011 is 13,600  with all his late charges and fee The car is worth 5,000 to 6,000. His credit is shot should he do a voluntary repo and then file bankruptcy for the balance His credit can't get much worse however he goes about it he is pretty much screwed but I want to give him the best advice I can. Help please

Jay

[StartingOver10]

What does the rest of his credit look like?

To file BK for such a small amount (<$14k) is like hitting a fly with a sledgehammer.   BK is not a bad thing, but not to be used so lightly either. In this case, if his debt is so small the cure is not BK.

Is he working? Does he have one job or more than one job?

Has he worked out a budget given his current income?

Based on your post and his very small debt, he would be better served to go to go on an extreme "beans and rice" diet (a la Dave Ramsey) and pay off the debt. It will do several things for him: 1) prevent a repo and 2) help him recognize to walk away from a bad deal before he signs the papers. Plus, his credit will recover much more quickly.

 #2 is probably the most important part.  If he has to work himself out of this payment, he will want to check his deals before he signs for them for the rest of his life. Its easy to sign the note - not so easy to live up to it.

One of the things he can do is to sell anything else he has on hand (garage type/craigslist sale) and pay off the loan more quickly. Or generate enough to refi the loan through a CU and bring in the balance that the vehicle is underwater. He may not be in a position to do this now, but if he picks up that second job and sells the items he doesn't need he can do it fairly quickly.

Don't come up with the money for him. That will not help him in the long run. I know this sounds like "tough love" but it is the best thing we can do for our children. Show them that their actions have consequences.

*It is important for him to realize that if he gives up the vehicle, he still will owe the balance on the note. Santander will sell it for next to nothing and add a bunch of fees, so a repo won't solve his problem. A BK will hurt him more than is necessary given his current debt level. He can work this out, but he needs to plan his way out with a working budget.

[Anonymous]

His credit is shot past s hot He is in the middle of a divorce has 3 kids in private school and 2 jobs and not enough money to pay all the bills. Even  if he doubles up on his payment through santander it would take quite sometime before he would pay off the car he has given them 25,000 over 4 years for a 14,000 dollar car and still owes 13,000 I just don't know what he should do. I think he will be moving back home (our house) with his 3 kids. That is the only help we have to offer him. We live paycheck to paycheck but my credit is good but I can't and will not help financial

[vetstorm91]

I got a car from a side car place a couple years ago with this lease option for 445 for 4 years and then owe 8000 at the end. Wanted another car but don't know what to do

[llecs]

Based on what you posted, it sounds like he financed a car with a subprime lender for a used card with a very high payment that he couldn't afford. Likely put little to no down too. I bet the APR is high, or at least knowing Santander.

What changed with his finances? If he could afford it at the time of purchase, why can't he afford it now? 

If I was in that situation, I would not do a voluntary repo. Voluntary, involuntary, it's the same per credit. Without knowing the budget, at the least, I'd consider withdrawing my kids from private school. On a personal note, I do have 3 of our 4 kiddos in private school and with tuition at over $1200/mo, it adds up. If it meant squaring away my budget, sending my kids to public school would be a serious consideration. He can always re-enroll them in the future after everything settles down. I would also consider selling the car. I would scrounge assets from somewhere to get it from being upside down, or get a loan for the difference, and I'd sell it. He cannot afford it.

Aside from the two above, I'd also get on a written budget. If 2 jobs isn't cutting it, then I personally would consider a 3rd income stream. I'd also consider a move and/or downgrade my residence. Sounds like he's not on a budget too.

IMO, BK isn't the way to go. A simple rebudget would fix this. There's some tough choices to make. These choices would be forced upon him if he files BK. At least he'll have the opportunity to captain his own ship if he goes at this on his own. Also he can decrease expenses like cancelling cable, phone, and hundreds of other examples or re-position money by changing his W-4s, state filings, using a refund, selling stuff he doesn't use or need, etc., and can fix this on his own.

On the car being upside down, whenever you finance a car, it will almost always be upside down. Cars typically don't appreciate. You'll always be thousands in the hole up to the end of the loan (if a long-term is chosen).

[GregB]

I would say that just getting a car loan through Santander would indicate a lack of financial responsibility. He was in trouble from the beginning. Perhaps things were going downhill already at that point. I agree with all the above posters about the idea of him digging himself out and that BK is massive overkill for the car.

HOWEVER, I think the divorce is likely to bring up many more issues. The car is probably one tiny part of a bigger financial issue. He needs to be getting some advice from someone that knows Family Law in his state and knows the whole picture: assets, debts, house, mortgage, spouse's income, etc., etc.