Ask Me Help Desk - Car Loan gone Bad

Ok... So here's the scenario.. I bought a Chrysler 300 in November 06 for 24k I PUT DOWN THE 4k and borrowed 20K from Wachovia @ 18%. They told me to pay for a year and then get refied after making payments on time to lower payment. After one year I called to refi and I owed more than I borrowed. I called back and the loan officer told me half my payment went to principle and half to interest. On my 20 ieth payment my insurance was added to the loan, unaware I paid the $600 payment and 3 days later my neighbor came to me and said the bank called them and asked them about my finances and if the car was out front. When I called the bank they said they did call and would not hesitate to do what had to be done to get info. I explained that I did make the payment and I was informed that without the insurance there was no payment. The lady they called (my neighbor) was about to list her home with me, but after hearing the news listed with someone else. This cost me $12,000 I decided that I would just return the car andstop the bleeding. They picked up the car , but the three days later they had a tow truck at my moms in san Diego and then went to my sisters house. I got a letter that they auctoned the car off for 10K. Tomorrow morning I go to court they are sueing me for $21K.

Here's my math:

New car $24,000 + $3,000 taxes etc

I paid.. $ 4,000. Down
$12,000. Payments
Car sold $10,000
Sueing 4 $20,000

That's $44,000 to drive a car for 20 months

Do I have a case worth missing work tomorrow? And lose another $300 or should I go to court and fight these thieves. I own a home and I am afraid they will attach a lien or judgement. If I file chapter 7 will they go away. I am doing everything not to lose my house.

Please Help Me... hard working guy

Welcome to AMHD. You need to see a lawyer who knows the technical aspects of defending a suit for a deficiency balance on an automobile loan after repossession. Just curious: did you file an answer to the suit? Were you served? You also need to speak with a bankruptcy lawyer as to your income, budget, property, debts, and exemptions.

Quote:

Originally Posted by George_1950

Welcome to AMHD. You need to see a lawyer who knows the technical aspects of defending a suit for a deficiency balance on an automobile loan after repossession. Just curious: did you file an answer to the suit? Were you served? You also need to speak with a bankruptcy lawyer as to your income, budget, property, debts, and exemptions.

Good answer -

I'm sure by now you've realized it's never a good idea to allow a car to go to repo; never a good idea to get a loan at an 18% interest rate. Didn't they show you the loan table - you make this payment and this is your loan balance and so forth, month by month?

That is more than triple the rate in my area and there must be some other circumstances at play here.

Anyway - yes, you need to see an Attorney. I understand your figures but legally that's neither an argument nor a defense.

I can't figure out why the loan company panicked (for lack of a better word), charged auto insurance against your loan when you already had paid for auto insurance. Also question whether they can/could/should contact anyone but you about the loan. Seems like over the top collection practice to me.

But I think that's water under the bridge now and you need to consult an Attorney.

I agree with George. If you allowed the insurance lapse on the auto, that enabled the finance company to place "forced" insurance at an exhorbitant rate. After 19 payments the balance of the loan would have been in the neighborhood of $13,636. This would leave a deficiency of $3,636 plus costs. How this could have ballooned to $20,000 is beyond me. Don't lose by default. Go to court even if you can't afford an attorney.

I'm sure there is a clause in your loan contract that permitted them to pay the insurance and add it to your loan balance to protect their interests.

But if you can prove it was paid directly then the insurance company was paid twice. You should have gotten a refund from the insurer and used that to make a principal payment on the loan. So that was mistake #2.

Mistake #1 was buying more car than you could afford at a ridiculous interest rate.

You said something about your neighbor listing her house with you. That would indicate you sell real estate. If so, then you should understand how loans are amortized. Where the earlier payments go more towards interest than prinicpal (not half and half). I can see how adding $600 to the principal might bring the loan balance to more than you originally financed. But that still shouldn't have stopped you from a refi (as noted you should have been able to removed the $600 added to prinicpal).

Then you committed mistake #3 in allowing it be repoed. Cars sold at repo auctions tend to fetch a fraction of their value, leaving the purchaser still owning a significant balance.

I don't know what case you think you have. You defaulted on the loan and allowed them to repo the car. You should demand an accounting of how they are arriving at the figure they are suing for, but with attorney fees etc. $21K is not out of line.

The good news is your primary residence is probably exempt, but they could go after your salary or other assets. Its never a good idea to not show up in court. But if you plan on filing for bankruptcy protection you need to do so before they get a judgement.

[QUOTE=ScottGem]I'm sure there is a clause in your loan contract that permitted them to pay the insurance and add it to your loan balance to protect their interests.

But if you can prove it was paid directly then the insurance company was paid twice. You should have gotten a refund from the insurer and used that to make a principal payment on the loan. So that was mistake #2.

Absolutely agree with Scott but would add: if there was double insurance on the vehicle (the OP's insurance and wherever the finance company obtained insurance) the OP may NOT get his money back for the period there was double insurance, unless the companies were notified in a timely fashion and failed to act. The insurance companies can - and possibly will - take the position that had there been an accident who knows which company would have received the claim; therefore, even though only one company would have paid out - which one would that have been?

Both insurance companies took the risk of paying a claim.

I ran into a slightly different version of this same thing not too long ago and the above was the position of both insurance companies. In that case the insurance provided through the bank could NOT be cancelled; there was a refund on the unused balance of the insurance obtained by the debtor.

Also the loan may have required that proof of insurance be furnished within X number of days. If that was not done they had every right to arrange to insure the "property."

Same with real estate - don't keep the mortgage company informed, go a day or two over - and, surprise, you have very, very expensive insurance - arranged by the mortgage company.

Judy - that was very well explained. Apparently the OP had bad or very poor credit to have to get an 18% car loan. Sometimes driving a car can be a very expensive financial lesson to learn.