Some people consider the type of vehicle that they have as an indicator of their success. This type of thinking can cause someone to get in over his head when purchasing an automobile. If you find yourself unable to make your vehicle payments, your lender will begin pursuing you for payment on the delinquent account. Even when the lender repossesses the vehicle and sells it to pay the account, you can still be on the hook for any remaining balance left on the account. To stop the auto loan debt collection, follow a few rules.
Talk to Your Lender
Calling your lender and requesting help at the first sign of difficulty in paying your auto loan can help stop collection efforts. Many creditors have programs to help customers who are having financial difficulties, including the option to refinance the vehicle. Since an auto loan is a secured loan, your lender can repossess your vehicle if you stop making your payments. According to Illinois Legal Aid, the lender does not have to have your permission to repossess the loan's collateral.
Pay the Debt
Granted, if you could pay the debt the lender would not be pursuing collections. But if you can borrow the money from friends or family, you can stop the debt collection. If your financial setback is temporary, consider withdrawing the amount necessary from your Individual Retirement Account to pay the loan. According to Bankrate.com, you can remove money from your IRA for up to 60 days without being subject to penalties or taxes. You can return the money to the IRA when your income returns. Another option is to sell the car and use the proceeds to pay off the loan. Typically, you will receive more money for a vehicle by selling it on your own than the lender will receive from an auction. Just bear in mind that most cars depreciate in value pretty quickly. Unless you paid a lot of the principal early on in your loan, the amount you get when selling your car probably won't cover the balance of the loan you still owe.
Settle the Debt
If you agreed to a voluntary repossession, you can potentially lessen the lender's expenses when he repossesses the vehicle. This can mean a smaller balance owed after the lender sells the car. If the lender sells the car for less than the balance on your loan, negotiate a settlement to satisfy the debt. Offer the lender less than the balance through a payment plan you can afford. Coming to an agreement with the lender is essential if you want to prevent a lawsuit that could result in your wages being garnished to satisfy the debt.
As soon as you file for bankruptcy protection you receive an automatic stay that prevents your creditors from contacting you. Under Chapter 7 bankruptcy, you can eliminate the debt. Under Chapter 13, you reorganize your debt into a payment you can manage. The United States Courts recommends that anyone considering bankruptcy seek the advice of a qualified attorney before filling. A bankruptcy filing can show on your credit report for up to 10 years, making it more difficult to receive credit in the future. If the lender has not repossessed the vehicle, you might be able to reaffirm the debt with the lender and continue making your payments in a Chapter 7 filing. Or, if you file Chapter 13, you can pay a percentage of the balance through your reorganization plan.
- Bankrate.com: Repossession Won't Forestall Car Debt
- Illinois Legal Aid: Can the Bank Take My Car if I'm Behind on My Loan Payments?
- Bankrate.com: Borrowing From an IRA
- Edmunds.com: What to do If You Can't Make Your Car Payment
- Carreon And Associates.com: Your Repossession Rights
- United States Courts: Bankruptcy Basics
- United States Courts: Liquidation Under the Bankruptcy Code
- United States Courts: Individual Debt Adjustment
- Thinkstock/Comstock/Getty Images
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