What Happens if you Stop Making Car Payments

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A reader owes big money on her car and wants to know what she should do next. Here's what she SHOULDN'T do.

Question: I have a car that I’m upside down on, to the tune of about $14,000. I was told to let it go back to the dealer and buy another — and that it wouldn’t hurt my credit if I kept my payments up for a year. Is that true?

— Cynthia in North Carolina

Steve Rhode answers…

Whoever gave you that advice doesn’t have a clue what they are talking about.

Just handing a car back will generally result in you being sued for the difference between the current loan amount and the small price the lender might get when they auction off your car. They will sell it for wholesale or less.

The lawsuit for the remaining debt you’ll owe (and the resulting judgment) will likely end up on your credit report. So will the repossession and defaulted car note. That will hurt you for years to come.

In such upside down situations like yours, often the best strategy is to hand the car back in conjunction with filing bankruptcy. The bankruptcy will terminate the liability from the bad car loan — and big amount — that’s likely due.

For the next year, you might need to either borrow a car from a friend or family member or look at buying an overpriced car at one of those buy-here-pay-here lots.

You can jump on rebuilding your credit and start the day after your bankruptcy is discharged. In about a year, you’ll again be eligible for better vehicle financing, and if you’ve worked hard to rebuild your credit, you’ll be surprised at the interest rates new car dealers may offer you.

How do you repair your credit? Here’s a step-by-step guide. As for declaring bankruptcy, start with a free consultation before you decide to do anything. I realize this isn’t the easy answer you may have wanted, Cynthia, but it’s one I’ve seen work countless times. Good luck.

Steve Rhode is better known as the Get Out of Debt Guy.


Have a debt question?

Email your question to and Howard Dvorkin or one of his fellow experts will review it. Dvorkin is a  CPA, chairman of, and author of two personal finance books, Credit Hell: How to Dig Yourself Out of Debt and Power Up: Taking Charge of Your Financial Destiny.

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Meet the Author

Steve Rhode

Steve Rhode

Expert contributor

Rhode has been writing since founding a nonprofit in 1994 to help people get out of debt.

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