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Learning, Sharing, and Teaching => Ask a Mustachian => Topic started by: Kansas Terri on November 30, 2016, 10:13:09 AM

Title: A cyber-friend of mine has a problem
Post by: Kansas Terri on November 30, 2016, 10:13:09 AM
And, no, this cyber-friend is not me!

She is having a lot of health issues, and she really thinks she cannot work until she is 65: right now I believe she is 61.

The PROBLEM is she has a high car payment of over $500, and she is up-side down on it to boot. She has been paying a little extra every month, but she sees no way to get rid of the car other than filing bankruptcy, and she does not wish to. If she retires it will be only on SS, which will pay her about $1,500 per month.

Unless she unloads the car, that is not enough for her to live on.

I have never sold a car unless it was worn out, so I do not know what advice to give her. I have HEARD of people selling a car to get out of a car payment, but how is it done if she is upside down? Would the dealership or the bank allow her to make payments on the difference between the sales price and the debt, or  would they expect a lump sum? I would be surprised if she could afford to pay a lump sum: I think she is just squeaking by!
Title: Re: A cyber-friend of mine has a problem
Post by: Slee_stack on November 30, 2016, 10:23:30 AM
She'd have to get another loan to cover the difference between the selling price and what's owed.

No magic here, just simple math.  $5k upside down after sale?  $5k personal loan.  I presume the personal loan would be far lower than $500/mo for a similar term.  If she needs another car, that extra payment would have to be added in too.

She could let the car be repo'd, but if the balance is high, the loan company might sue.  Bankruptcy may be the best option.
Title: Re: A cyber-friend of mine has a problem
Post by: AZDude on November 30, 2016, 10:38:07 AM
$500 a month is a lot for a car, especially for someone with no savings, no retirement, etc...

Basically, she screwed herself for years and years and now is faced with the consequences. No magic potion here. Either she calls the loan company and lets the car get repossessed or she keeps paying on it.

Have her make a budget, use whatever extra she has to pay down the car. Find the moment when the value and loan amount finally converge and then sell. 
Title: Re: A cyber-friend of mine has a problem
Post by: honeybbq on November 30, 2016, 10:53:49 AM
Jeez, bankruptcy over a CAR?? What has the world come to?
Title: Re: A cyber-friend of mine has a problem
Post by: J_Stache on November 30, 2016, 11:32:18 AM
How many payments does your friend have left on the car?
Title: Re: A cyber-friend of mine has a problem
Post by: Kansas Terri on November 30, 2016, 11:59:48 AM
She never said how many payments she had left: only that she was still upside down even though she had been paying extra every month
Title: Re: A cyber-friend of mine has a problem
Post by: cincystache on November 30, 2016, 03:21:09 PM
Tough situation. Scrape together 2,000 and buy a beater then sell the expensive car and take out a loan for the difference. It will lower her monthly payments. Once she pays off the loan, she can start saving up for a new (used) car. Good luck
Title: Re: A cyber-friend of mine has a problem
Post by: kite on December 01, 2016, 04:54:26 PM
She doesn't have to go bankrupt to get rid of the car.
Stop paying and they'll come take it away.

She committed herself to paying an unaffordable premium for transportation.  If it's important to her, she'll make it work, ie..cheaper housing, selling off possessions, etc.  If it isn't important to her, she can let the car go and it will be the finance company's problem.  Unless by some bizarre scheme she used student loan money to buy the car, they aren't going to garnish her SS for the difference between what she owes and what the car is worth. 

 Don't bail out your "cyber friend" whatever you do.  $1500/month is plenty to live on.  My mom has been managing on $1300.   My first instinct was that your cyber friend is a con.  But even people we know and love IRL will gripe about dire financial circumstances that don't turn out to be the end of the world.  They manage to get bailed out, find a secret stash or sugar daddy, or inherit something to tide them over to the next financial emergency. 
Title: Re: A cyber-friend of mine has a problem
Post by: Kansas Terri on December 01, 2016, 07:12:54 PM
I thought about her getting repossessed, but I hear the repossession fees are very high. That is just scuttlebutt: I suppose it varies from state to state. I *DO* know that when I was starting out as a young adult 40 - odd years ago I signed a contract on a car that said if I defaulted on the loan I would owe the full debt + repossession fees + they would keep the car. At the time I thought that was standard. I did not worry about it because I knew we would not default, and we did not.

I think she has a hard decision to make. She wants to do 3 things (retire for health reasons, avoid bankruptcy, and keep her non-car possessions ) and I suspect she can only do 2 of those 3 things. And, the car has over 4 years left on payments.
Title: Re: A cyber-friend of mine has a problem
Post by: kite on December 02, 2016, 07:31:58 AM
Whatever the repo fees are is besides the point.  If she is underwater and can't afford $500 month, the fees could be $100, $1000 or $10,000 and it's all the same problem.  She can't afford it.  This hurts the institution who handed her the keys and hoped she would pay. 
People walk away from varying levels of debt all the time without declaring bankruptcy.  This is a likely scenario:  she stops paying.  They come get the car.  Her finance company sends a series of "Final" notices and calls her a couple times hoping she'll pay.  Then they'll sell the debt to a collection agency for pennies on the dollar.  Those folks will call, send threatening letters etc.  They'll try to wear her down with talk of ruined credit.  They'll also negotiate.  But you can't get blood from a stone.  They may eventually secure a judgement against her & her estate, but they won't be able to garnish her SS income.  If the amount is low enough, and it probably is, they'll write it off. 

Keep in mind, however, there is more to your cyber friend's situation than you know.  There may be a savings account, home equity, off-spring, a partner, etc..  SHE signed up for really high car payments a decade into AARP membership eligibility.  She didn't do that in a vacuum.  If her financial situation made such an extravagant car payment reasonable while employed, but she is actually able to get by on $1500/month, what has she been doing with the difference?  Keep in mind that non mortgage debt payment should never exceed 10% of your monthly income.  $500/month is only acceptable if she is netting over $5000 month take home pay and no other non-mortgage debt.  If her income while working is that high, but she could really manage on $1500, where is all the other $3000 per month going?  Savings?  Or QVC/Indian Bingo/Hookers & Blow?  A grandson she is putting through college? 

If she simply just bought too fancy & expensive a car in the first place, she can head back to the same dealer and trade it in on something cheaper with a lower monthly payment.  Yes, there will be residual debt from the fancy car built into payments on the econo box, but she wouldn't be living so far beyond her means. It really depends on the seriousness of her health problems and what transportation requirements and alternatives she has in retirement. 

Under no circumstances should you offer her money to close the gap.  The fact that she has some money to "pay a little extra" suggests that things aren't as bad as you've been led to believe.  If she is going to walk away from the debt, paying extra now is futile and she should hoard cash.  But it sounds like she believes she'll need the car (or some car) and wants to make it work.  She just needs to plug the other holes in her finances and evaluate her assets versus needs. 
Title: Re: A cyber-friend of mine has a problem
Post by: Kansas Terri on December 02, 2016, 10:08:14 AM
A little more information has come out: she lost her job in Missouri and moved to Texas near her family and got a job. But, she was never able to sell the house in her old state, and so she rented It out at a small profit. She hopes to try to sell it again when her tenants lease is almost finished next summer.

She appears to have the assets she needs: she is simply in a cash bottleneck. And, she does not like it. She WANTS to immediately retire in a house near her family, and until she lowers her monthly payments, she simply cannot do it.

I get the impression she has always made ends meet through sheer hard work, but that she has never really THOUGHT about finances! I am starting to get the impression that when she was broke she simply asked for overtime, which was fine until she got older and started having health problems. Not everyone in their 60's is able to work as hard as they did when they were younger.

She is working hard trying to figure out how to make ends meet without changing anything. I see no good happening from her continuing her current lifestyle.  The numbers do not add up. She needs to either change her goals or handle money differently. Either one would work out well.
Title: Re: A cyber-friend of mine has a problem
Post by: kite on December 02, 2016, 02:02:17 PM
A HELOC could bridge the gap for her.
You are not the bank.