The process of settling car payment debts is fairly straightforward in theory, but can actually be quite complex in practice. The idea is that when borrowers fall behind on their car loan, the lender may be concerned that the borrower will stop paying the loan altogether. In such situations, the lender may make a strategic decision that a lump sum payment from the borrower of an amount that is less than the total amount owed is safer than taking a risk that the individual will stop making monthly payments on their loan. The practice of allowing borrowers to satisfy their car loan obligations by paying a portion of the total amount owed is known as a car payment debt settlement.
The decision about whether or not to negotiate for a settlement of your car debt is one that should be given significant thought. There are many different options available for borrowers, and lenders are frequently willing to work with individuals to resolve their car payment debts. Some lenders offer straight settlement options where a borrower pays a lump sum directly to the lender. In these situations, the debt is noted on a credit report as “settled” and may have a significant impact on the ability to obtain credit in the future. Another option for settlement is credit counseling, which often lowers monthly payments and allows borrowers to settle by adhering to a monthly payment plan. The use of a credit counseling service often appears on the credit report as well; however, it is generally not as significant an issue as the “settlement” mark can be.
When an individual files for bankruptcy, they may or may not have all of their debts discharged – every bankruptcy is different. However, if you file for Chapter 7 Bankruptcy (personal bankruptcy), there is a good chance that your car payment debt will be discharged as part of the proceedings. If the debt is discharged, the car will be repossessed by the lender. If you decide that you want to continue to use your car, your lender may allow you to “re-affirm” your loan agreement. Essentially, this process renews the original loan agreement and binds the borrower post-bankruptcy. Once a borrower re-affirms after bankruptcy, the car debt is no longer dischargeable.
All borrowers should keep in mind that if a debt is delinquent, their credit scores will be adversely affected. The repercussions of having discharged debts on a credit report can be significant; thus, borrowers should seriously consider working with the lenders to arrive at a reasonable settlement agreement. Choosing not to settle a car debt will eventually result in the lender having no choice but to repossess the car, thus having a significant impact on the credit score of a borrower.
The end result of a successful debt settlement is that the borrower is able to move forward from the situation with their credit still intact, and for less than they would have otherwise paid. Additionally, the lender is able to collect money that would have otherwise been difficult and time consuming to obtain. While credit scores may be impacted negatively, the effect of a settlement is far less problematic than the impact of a discharge or prolonged delinquency.
When appropriate, a car debt settlement may be the best choice for borrowers who have fallen behind in their payments. In order to assess all options and to get the best settlement possible, individuals should seek the assistance of an attorney who specializes in consumer credit and loan law. An experienced attorney can make a significant difference in the final outcome of car debt settlement negotiations.