Most people with experience in this or with an opinion recommended leaving bankruptcy as the very last option, mainly because what a bankruptcy discharge does to one’s credit score. Typically, a debtor can expect at least a 100 point downturn and as much as a 200 point downturn on his or her credit score. That is an event that is difficult to turn around. With that in mind, the focus comes to the vehicle that is the debtor’s concern. A loan that uses the asset being purchased as the security for the loan of that asset the loan is a called a secured loan. This asset has worth when it is purchased and its worth will typically increase or decrease over time. With a car the asset worth often decreases. As most people know the worth decreases more quickly if the car is need of repair and or not taken care of very well. When a car owner has a loan on the care and that loan is in arrears, the chances of repossession increase as the arrears’ term lengthens. When a car is repossessed, the (previous) car owner can be faced with a discrepancy judgment. This judgment is given to an asset repossessor, the judgment requester that can show that the asset is worth less than the amount owed on the loan. The judgment can also contain any additional cost and fees that the repossessor incurred due to the repossession. Repossession appears on a credit report. A court judgment will also appear on the debtor’s credit report. Even the debt owed after repossession and before judgment is reported against one’s credit score. At least one expert stated that repossession itself will impact a person’s credit score from 50 to 150 points. That is almost or as bad as a Chapter 7 discharge’s range. Then comes the unpaid amount; then the judgment. One person related that an unpaid judgment continued on a credit report for twenty years. Typically, its seven years, like repossession. A discharge stays on a credit report for 10 years.
Now, the comparison …
Credit score: chapter 7 discharge is 100 to 200 points while the repossession is 50 to 100 points. But, the additional credit score entries for unpaid balance and judgment might simply balance them out.
Amount to pay: a Chapter 7 discharge wipes out the car and its debt while the repossession is a circus of stress, phone calls, irritation. Chapter 7 would appear to weigh better in this balance. Also consider that Chapter 7 may leave the debtor with the car if it has little liquidation value. The debtor might be able to at least sell the car for parts or a tax write-off, or even get some money for it in a “trade-in” if the debtor can find someone to sell the debtor another car on loan.
Have a car: Chapter 7 may leave the debtor with the car that cannot go while the repossession will definitely take the car and leave a judgment or worse.
A bankruptcy will (very well should) incur lawyer fees. Not sure on a repossession … Debtor’s choice.