If I abandon my car and let the debt company know where it is, will that free me up from the car loan debt?

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If I abandon my car and let the debt company know where it is, will that free me up from the car loan debt?

I have had this car for a year but stopped making payments about 6 months ago. Will returning the car to them benefit me? Or would it make things worse? I don’t want the car (I got it for a job I lost) but I can’t pay the debt right now.

Asked on September 19, 2011 under Bankruptcy Law, Washington

Answers:

SJZ, Member, New York Bar / FreeAdvice Contributing Attorney

Answered 10 years ago | Contributor

A car lender has the right to take  the car to help pay off the loan, if the car owner defaults on the debt; but the car lender is not required to take the car as payment in full, if the value of the car does not cover the debt. Instead, in that case, the lender can sue for the balance. Examples:

* Say you owe $7k more on a car loan when you default, but he car is worth $8k; since the car's value more than covers the debt, you can probably get the lender to take the car in satisfaction of  the loan (they may even owe you some money back in some circumstances).

* Say you owe a total of $16k more on a car and it's worth $11k at present--then even if the lender takes and sells the car, you'll still owe $5k, and they could sue you for that.

So under the loan, you owe certain amount of money. The lender is entitled to payment in full, whether it comes from your payments, from repossessing the car, or both. You can't force the lender to take the car as payment in full when you owe  more than the car is worth, though you can negotiate with them and see if they'll agree to do this, as a way to avoid the cost of a lawsuit and collections.


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