If you have ever had a vehicle repossessed, you are probably aware that typically the lender sells the vehicle and will pursue you for any deficiency balance from the sale of the vehicle. For example, if you financed a vehicle for $25,000 and it sold for $15,000, then the lender will pursue you for the $10,000 deficiency balance owed on the vehicle. Most individuals cannot afford to pay a deficiency balance in full immediately, so here are a few options for dealing with vehicle deficiency debt:
Discharge the Debt in Bankruptcy
Vehicle deficiency debts are unsecured debts which are commonly discharged either in a chapter 7 or chapter 13 bankruptcy. If you have no funds to settle the deficiency claim then bankruptcy may be the best option for you, especially if you are dealing with other financial pressures or debt.
Lump Sum Settlement
If bankruptcy is not the best option for you, then you have options for settlement of the debt. You can offer a lump sum settlement for a reduced payoff that is payable in one or two payments usually. For example, if you owe the lender $10,000, you could offer a one-time payment of $5,000 as settlement. Please note that debt forgiveness will generate COD income which is taxable income and may have adverse tax consequences. You should consult with your accountant on the tax consequences of any settlement.
Monthly Installment Plan
If you do not have the cash resources to offer a lump sum settlement, you may want to pursue a settlement that involves monthly installment payments either for the full deficiency claim or a reduced payoff. Please note that most lenders will not want protracted payments over years, so if you can propose to payoff the debt within a year or sooner, that is ideal. If you are experiencing financial hardship and your circumstances might or will change, you could over a “step up” monthly payment plan where initial monthly payments are relatively low but increase at set time when you believe your financial circumstances will be better. The lender may require a financial statement or information or documents to support your financial hardship such as recent bank statements.
About DelCotto Law Group
DelCotto Law Group is Kentucky’s asset preservation and business restructuring law firm known for its commitment to the lifetime success of its clients. With offices located in Lexington, Louisville and Danville, DLG serves Kentuckians with complicated financial matters, especially in the areas of bankruptcy and complex litigation. For more information please call (859) 231-5800, email [email protected] or reach us on our contact page.