I lost another potential client today. He was a young guy. His bills, especially his car payment, are overwhelming him.

Thing is, he doesn't need to file bankruptcy. And I told him that. What he needs to do is get rid of his car and start riding the bus. In fact, I also told him he should let the bank repossess the car.

Before anyone gets upset, let me just say that this advice isn't necessarily the advice I would give to anyone else. But in his case, it made sense.

This guy had just a few debts: the car and only about $3,000 in credit card bills. Right now, he's about three months behind on his car payment. On top of that, the bank has started tacking on insurance payments since he let his own insurance lapse. Clearly, he can't afford the car or any car-related expenses.

With that in mind, let's look at why for him bankruptcy is a bad idea. First, he said he wanted to keep the car after bankruptcy. What that means is that he is going to have to keep making the car payment and might even have to sign a reaffirmation agreement to keep it. So the basic effect of the bankruptcy is that the only debts he'll be getting rid of are his credit cards, which he is already not paying.

Get the picture? If he files bankruptcy and keeps the car, he'll be in the same exact place as if he didn't file bankruptcy. The bankruptcy isn't going to free up any money at the end of the month. It's simple math: his expenses exceed his income. The only thing that will give him some breathing room is if he gets rid of the car.

So, that's what I told him to do. Yes, the bank will sell the car and come after him for any deficiency after they pay off the loan, but it will be less than what he owes right now. The bank wasn't willing to refinance or negotiate any payment terms. And maybe he could trade his car in for a less expensive one, but his loan wasn't that high and he'd have to finance anything he owed over what he got for the trade in.

If he gets rid of his car, he'll have money available to pay off his credit cards and take care of the deficiency on his car. In return for 12 - 18 months of public transportation, he'll get his financial life on track and feel better about his future.

Should you get rid of your car to avoid bankruptcy? It depends on a lot of things, but it might make sense for you. If filing bankruptcy won't put you in any better financial position afterwards, maybe you need to explore other options.

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