Liz Weston

Dear Liz: My husband returned a car to the dealer when he lost his job. Now the company says he owes it more than $7,000 (the difference between what he owed to the dealer and the price for which the car was sold). He refuses to pay any amount, but recently he received a letter from a law office demanding payment or they will take him to court. Is he obliged to pay this money? What options does he have to get rid of this debt?

Answer: A debt doesn’t disappear simply because someone decides not to pay it.
Your husband signed loan paperwork to buy the car, and this paperwork obligated him to repay a certain amount. Voluntarily surrendering the car didn’t change his obligation. Also, the surrender probably is being reported to the credit bureaus as a repossession, which is a big negative mark on his credit reports. Some people mistakenly believe that a voluntary surrender avoids credit damage. Typically, it does not.

Your husband could make matters worse if he continues his stubbornness. The law firm can take the collection to court, where it’s likely to win. That will add a judgment to your husband’s credit files and cause further damage to his scores. His wages could be garnished to pay the debt.

Your husband may be able to settle this debt for less than he owes, especially if he can offer a substantial lump sum, but negotiations with a collector can be tricky. He may want to consult an attorney for help or at least arm himself with more knowledge about what to do from sites such as DebtCollectionAnswers.com.

If this is just one of a number of unpaid bills, though, you both may benefit from talking to a bankruptcy attorney about your options.
In the future, keep this experience in mind when you go to buy another car. Making at least a 20% down payment and limiting the loan term to four years or less will help ensure that you’re never “upside down” like this again.