How it started
When Covid-19 hit America it was a black swan event that nobody could have predicted the series of financial turmoil it would cause for many Americans. Several major factors contributed to the reasons why Americans decided to buy new cars. Huge stimuluses were provided giving millions of Americans cash in hand as they pivoted from working in offices to working at home. With overflowing bank accounts and the fact that nobody could travel, eat out or do anything, many people decided to go out and finance new cars. Supply chains were also virtually shut down making car production and delivery difficult resulting in people fighting over what inventory was available. Many people are now asking how to give a car back and we are going to explore the options available to you.
What dealerships did
With so many customers and such little inventory, car dealerships used all the tricks in the book to try to get you to finance your car for a less than optimal price. By charging thousands and sometimes tens of thousands over MSRP (manufacturer’s recommended price), the dealerships allowed people to finance cars at prices they knew were borderline absurd. As we reach the end of 2023, the trend has completely flipped and now not only are the same cars available at MSRP or even lower prices, but the dealerships inventory is overstocked. Many are sitting on huge amounts on 2023 models with the 2024 models about to become available. If you are wondering if you can give a car back to the dealership, you need to understand how it all works.
Where you and your loan stand
So now you have a new or even used vehicle and you want to know how to get out of the car loan. Here are some of the major factors that may be working against you:
- You paid over MSRP and your vehicle isn’t currently worth what you paid
- The dealerships have no incentive to take back cars as they are overstocked
- Your insurance premium may have just went up
- You may have bought your car on a adjustable rate (ouch)
- Inflation is hitting your family hard for both gas and overall expenses of life
- The job market is cooling (at least it seems so)
- Your bank account is empty or your struggling to pay bills
- Student loan payments were just reenacted
- Gas prices are at astronomical levels
- Credit card debt is at all time highs
- Rent prices are unbelievably high
- You may be facing debt collection and insolvency
If you are looking for some kind of debt relief, there are avenues you can take to minimize your financial stress. Going to the dealership and begging them to take your car back probably isn’t an appropriate route to take. Although a vehicle is a secured asset as opposed to an unsecure asset such as a credit card bill, you will have to accept the price they give you if they agree to allow you to give the car back to the dealership. Settling your car loan is a lot more beneficial for you than allowing the bank to repossess the vehicle. If the vehicle is repossessed and the value is less than that of your debt it is called a deficiency payment and it will certainly hurt your credit. If you want to know how to give a car back to the bank or dealership there are basically three good options:
Debt Settlement, Chapter 13 Bankruptcy and Chapter 7 Bankruptcy.
Debt Settlement
If you don’t want to or are unable to file for bankruptcy for any reason the option of getting debt relief through a debt settlement might be the best option. In this case the vehicle would be returned to the bank and your attorney would negotiate a settlement with your creditor for a portion of the amount you owe. It is not recommended that you try to negotiate yourself as lawyers have experience and know how to get you the best deal possible. The amount the creditor is willing to accept will depend on a lot of factors like your income, expenses and your general ability to pay back the loan. A bankruptcy attorney deals with this daily and can convince your creditor that something is better than nothing and can usually get you a significant discount on the debt you will have to pay. As a California bankruptcy attorney serving for the Riverside Federal district which includes both Riverside and San Bernardino counties, I have decades of experience and can help you with negotiating debt settlement.
Title 11 of the United States Code is the source of bankruptcy law and it is important to understand that these laws were created to protect the average consumer. For those who don’t have and may never have the money to pay back the debt they have incurred, these laws give you a path to discharge or reorganize secured and unsecured debt and get your financial situation back on track.
Chapter 7 vs Chapter 13 in California
The two types of bankruptcies that are available to individuals are Chapter 7 and Chapter 13 while Chapter 11 is for businesses. The way to determine whether you are eligible for a Chapter 7 bankruptcy is if you pass the California means test. The means test determines whether you are above or below the median income in California based on the size and income of your household. When filing a Chapter 7, you will be able to discharge all of your unsecured debts. Because of California’s generous exemption laws, most people don’t have to worry about losing their assets unless they have a lot of expensive things, however, your home is usually protected. If you have a car that you want to give back to the bank or dealership, our law team can give you insight on how to file a chapter 7, you simply will give the vehicle back and the difference will be discharged. However if you do want to keep your vehicle, your attorney can negotiate a reaffirmation agreement which basically makes a deal with the creditor outside of the bankruptcy. This is why a chapter 7 bankruptcy is often referred to as a liquidation or fresh start.
For those who make more and are unable to pass the means test, they will file a Chapter 13 bankruptcy. In this case you and your California attorney will make a plan to pay back all or some of your unsecured debt based on your monthly disposable income. The plan lasts from 3-5 years and as long as you make monthly payments all of your unsecured debts will be discharged (minus what you paid back), however this can be as little as 10% of the total debt.
Ask a Riverside Bankruptcy Attorney
These are very over simplified explanations for complicated legal matters. We highly recommend contacting an experienced attorney to help you understand how to give your car back in your area and if you want an excellent lawyer in Riverside, Palm Desert or San Clemente please feel free to contact us for a free consultation.