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If the Dealership Goes Bankrupt, The Car You Sold May Come Back to Haunt You

Did you just sell your car? If the dealership you sold your car to goes under because of the economic crisis, you may find that you're still on the hook for that car loan:

The national wave of auto dealership closures has come crashing down on thousands of people who are on the hook for used-car loans that dealers were supposed to absolve.

When a car buyer still owes money on a vehicle he is trading in, the dealer promises to pay off the outstanding loan, then resells the vehicle. But as more dealers go out of business, some are sticking consumers with the bill. Lenders can then go after the previous owner who thought the debt was paid, or repossess the car from the new owner who assumed it came with clear title.

"It's devastating for people when it happens because they have two car payments and they can't afford them," said Rosemary Shahan, president of Consumers for Auto Reliability and Safety, a Sacramento-based nonprofit that lobbies on behalf of vehicle owners. "Their credit is destroyed for no fault of their own because the dealer defaulted."

Link


That's just not right. Since this is common practice, once the dealership signs the contract to pay off the buyers trade in, it should be the dealer's responsibility and in the case of bankruptcy the original lien holder should have to go after them.
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I heard this on The Clark Howard Radio show. He said sad but true and offered ways to avoid it. He has a website if you need to check out the details.
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Who would do that?

I have never heard of this, but it sounds like a bad idea. Pay off your own loans. I'm assuming the car dealership wants to pay off your loan because they are financing your new car and they make more money on the financing than the car sale, but for the person trading in, it sounds like a bad deal.
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Have to agree with Moon. Why would you not ensure that your loan was paid off? These are car salespeople. You're gonna trust them?
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This is only partially true. While it's a better idea to sell your car on the market yourself (you get a better price), if you trade in a car that has a balance on it, the dealership WILL take care of it. If the dealership goes under, you'll be responsible but that's only if the dealership hasn't paid off the balance yet. Dealerships don't wait very long to pay off trade-ins, because they lose money (the loan accrues interest while it's still in YOUR name). This would only happen if you were in that week-ish window of when the dealership didn't pay off their trade-in balances.
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car dealerships have to have a bond set up with their respective state agencies to be licensed and legal. If a dealership that you have bought from or sold to goes belly-up you can track it through that states licensing bureau and make a claim against their bond for any financial losses. Bond money can run out, however, so this is something that you would have to act on quickly.
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car dealerships have to have a bond set up with their respective state agencies to be licensed and legal. If a dealership that you have bought from or sold to goes belly-up you can track it through that states licensing bureau and make a claim against their bond for any financial losses. Bond money can run out, however, so this is something that you would have to act on quickly.
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