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Old 02-27-2010, 09:48 AM   #1
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Default Very upside down loan- poverished family

Wondering if anyone on the board has any insights on how super subprime (juice) auto lenders work and if they are willing to forgive some debt in exchange for the payoff of the loan,

Background- I am a casualty assistance officer for a Soldiers’ family who’* was killed last Sunday. The family is in extreme poverty, they have been homeless twice in the past year and their current 400 sq ft apartment on the South Side of Chicago does not even have a stove, just a hotplate.

The family somehow has 2 loans on two vehicles, a 2007 Pontiac G6 and a 2008 Mercury Sable. The Sable was totaled with no insurance and sits parked on the inner city street, the Pontiac runs but is not in good shape. The family pays $1200 per month on these vehicles and payoff is $38,5000. The interest rate is over 30%.

With the death of their Son, the Army will provide about 500k in life insurance/ death gratuity. They have received 100k yesterday. Note that they do not even have I have a any articles of clothing that would work for a funeral, everything was 2nd hand clothes. Helped them buy shoes, socks, belts, etc from a discount clothing chain yesterday.

The Father would like a different car as the family is large and a G6 doesn’t work well and the 2nd car is totaled. All his pay goes towards car payments on cars he can’t afford to insure. He would like a vehicle with a third back seat.

I called a car dealer friend and he stated he should just let the cars get repoed. I somewhat agree as I believe there may have been funny business in him buying cars he didn’t want and paying over 30% interest. Problem with the repo is that he will soon have big bucks in the bank- albeit likely for a very short time unless I can advise him into opening a trust.

Note the family has major mental health issues. They are not abusing the system in my humble opinion.

Seeing if the sub-prime lender might do a settlement on the cars, or should this guy just drop the cars off at the finance office????

Any thoughts
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Old 02-27-2010, 09:59 AM   #2
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if he does a lump sum pay off then he should be able to work something out with them.

DO NOT let them go to repo that will screw them for atleast 7 yrs of getting loans or assitance elsewhere. also i believe that the family can use his VA home loan to get a decent place and it will be locked in at 6% interest for the life of the loan with no down payment as well as no closing costs depends on his rank and LES to determine how much he is qualified for as i belive there is a surving spouse dependant rule on those now (passed within the last 2 yrs)

i will do some more checking on things and get back with more for ya
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Old 02-27-2010, 10:06 AM   #3
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M249,

Thanks for the idea about the VA home loan! I never thought of that....
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Old 02-27-2010, 10:09 AM   #4
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First, I think it'* a very kind and gracious thing you are doing here Guns. Given the times and the huge hit that market has taken. I'd say "return to sender". The very best they will take is the payoff. And if they get wind of the settlement, they can recover it all. Your walking a tightrope here I wouldn't want to get implicated in. You would think they would act logically but they don't. They have rules in place made for the general situation and don't bend.

I can feel for the situation, but your contemplating helping them commit fraud. $500,000 settlement and walk away from cars they trashed. That'* not going to help them in how to be responsible, nor improve the situation. You can verbalize this to any scenario you choose. But that'* my reality of it.
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Old 02-27-2010, 10:09 AM   #5
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If it'* repoed they will still owe on the balance, so still making payuments for nothing. File for bankruptcy. But don't say anything until filed. Once that'* done they are protected. Chapter 13 is repayment for pennys on the dollar. Chapter 7 removes all debt and teh car can be serendered and not have to make payments on ballance.
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Old 02-27-2010, 10:18 AM   #6
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When did it go up to 500? 6 years ago I had 250K. eh oh well.

Anyway, I'd suggest the bankruptcy too. Tell them, pay a retaining fee with a lawyer, this will at least get the creditors off the family. This will also give them time to figure out how to go about business. IMO.
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Old 02-27-2010, 10:20 AM   #7
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GXPV,

I would never lie to a lender. I have read Donald Trump'* books and he states negotiations with lenders on assets that are worth much less than they are on the books is a normal business transaction. If the lender receives notice that these cars, maybe worth 7,000 to a car wholesaler are on their books for 38,5000, the lender must write-off the difference on the lenders book and take a immediate paper loss. So lender might want to make a choice, 20k today or take a write-down of 21,500 on the loans (although the guys still owes it).

I don't know how many other lenders this guy may owe, wife has felony dui charges and all kinds of things going on. The lender may be better off with 20k today then trying to get paid out of the 500k pot a year later- as I would not bet that money may be blown. Large blended inner city family with a no common sense- every hustler in Chicago will be visiting this family before long.
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Old 02-27-2010, 10:24 AM   #8
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Although saddened by the loose of their son, it sounds like they are the enginear of there own train wreck. a 07 that barly works, driving without ins. I would give advice and little more. Just my opinion.
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Old 02-27-2010, 10:42 AM   #9
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I guess it'* a grey area whether you tell the lender they have $100k and soon the balance. Trump? Selling office building/business deals isn't used cars. A write down would be the the most viable, honorable option if you were to go in and go to bat for them. It does happen. I've seen it go either way. The big problem is going to be answering the standard questions of money and where it is coming from. If they get wind of the settlement, they will get their chunk before it'* all dispersed. And if they know its there, time doesn't matter to them, Interest/fees accrue on a sure payout. It could in fact put a halt on the balance being payed out. And give time for other creditors to get in line. Difficult situation. Just trying to see the negatives as well as the positives here. It sounds like these people need some professional help and completely out of the neighborhood/environment they are in or like you say, whatever they get will be blown. That kind of money could turn their life around, or just burn them deeper into a whole. I admire your taking on that kind of career Guns, it would drive me to the brink.
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Old 02-27-2010, 10:56 AM   #10
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Dan,

Your observation that there life is( has been) a train wreck is spot on. This family hits all the stereotypes associated with inner city people. Mother pregnant at 14 (she is now in her 50'*), drug usage, keeping the youngest Son at home instead of going to school (age 16), I could go on and on.

GXPV, great solid comments- thanks. I am simply trying to present ideas to the family that may help reduce the likeliness that the 500k will be out of their hands and in sharks and hustlers hands in the next few months. I view this as a one shot opportunity- but in my heart I think they will lose the money in under 6 months. But I rather try to point them in having some plan and fail then not try because I think they will likely fail.
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