Why the Poor Get Poorer: And a Request for Advice

My wife and I are helping out a friend that we have known for about 8 years. She is hard-working and honest but she is also poor. She has been a CNA for over 30 years and was kicked out of her section 8 housing a few months ago. We are taking steps to help her get back on her feet. For the time being she is living with us. We have also helped her find new employment. We hope that the new job and with the ability to save up some money while she is living with us, that she can get on a surer financial footing. She is feeling hopeful about her life for the first time in a long time.

My question involves a car loan. In January 2015, her car died and she had to have a car to be able to get to work. She has bad credit. She ended up buying a car at a used car dealer. Here are the particulars:

  • Make and Model: Buick LeSabre
  • Year: 2004
  • Sale Price: $9995
  • Trade in for old car: $2000 minus $1495 in undefined “other charges” or $505
  • APR: 29.4%
  • Total Finance charge: $5055
  • Total Loan repayment amount: $14,884
  • Monthly payments
  • Estimated current retail car value: $3500 (this is generous)
  • Estimated retail value at time of purchase: $4500 (this is generous)

As you can see, the car was financed for an amount of more than double its actual value at an exorbitant interest rate. Her current car payments are about 25% of her monthly income.

I am considering advising her to “surrender” the car to the car dealer and stop making payments. The creditor can still pursue the amount owed in excess of the cars value (and minus other fees) based on what I am reading in SC law. If this happens, she could presumably declare bankruptcy which is about $300.

So here are my questions:

  • Am I giving her good advice?
  • Is there an option to renegotiate the price with the dealer/lender?
  • It seems that Chapter 7 is an option if she is willing to surrender the car. I know that Chapter 7 requires minimum income limits and she is definitely below those limits. Is that correct?

Any advice is appreciated. And for the record, we are likely going to buy her a cheap car and finance it for her. If anyone knows of a cheap reliable used car for sale, let us know.

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