The TV commercials are all over the networks showing two friends chatting away oblivious to what is happening around them and WHAM another car smashes into the them while air bags are going off with blank looks coming from their faces. The ad’s apparent purpose is to demonstrate how safe this car is with front and side air bags with reinforced doors and multiple safety features where the driver and his passenger are able to walk away from it without an injury. This little 60-second commercial is over, but what happens next in the real world?

Following this scenario a little further, Bob and Ray, the passengers, walk away unscathed. Bob reaches for his cell phone and calls the police. An officer shows up in an hour and commences to fill out a traffic report. Insurance information is exchanged and a traffic police report is given to all the drivers involved in the accident. This is a no fault auto insurance state. Blame is immaterial other than for assigning moving violation tickets. No tickets were issued, as this was a nasty intersection with five to ten accidents per week. Something should be done Bob mused. Bob’s car is not operational. Everything is smashed and it looks like the frame is bent and twisted sideways where the front wheels are going in different directions. When the wreck occurred it caused a chain reaction in the rear and Bob’s trunk became pushed up into the back seat. No drivers were injured however.

Bob calls his insurance company to report the accident. After submitting to “twenty questions” and sharing the accident police report number Bob is advised to have the disabled and wrecked vehicle hauled to a frequently used facility where the auto insurance adjuster can view the damage and write a report as a basis for settlement and repair. Bob calls a wrecker and gets his smashed up auto to the recommended storage yard that doubles as a gas station and auto service. Upon arrival, Bob and Ray wait for a ride home from Bob’s wife who leaves work early to pick him up. Both Bob and Ray are still shaken by the near fatal experience.

The adjuster showed up at the storage yard the next day armed with a laptop and portable printer. Ray had to get a rental car till he got his car back in order to get to work and such. At work Ray received a call from the adjuster. The adjuster, Mr. Peabody, said the car was a total loss with nothing but salvage value left. The insurance adjuster went on to explain how the company set the values based on retail and wholesale composites with adjustments for mileage, upgrades, and such. With the conversation winding down, the adjuster stated the company was prepared to write a check to Bob and his lender for $14,500 including the salvage rights of the vehicle already reduced by the deductible. Bob began to argue and protest with the adjuster. Bob called his agent and further continued his rancor regarding the low payoff. Again, the insurance company emphasized the facts, with the insurance adjuster’s report in hand they were offering all that was possible. Bob was told, take $14,500 or nothing, as they would not pay one penny more. Bob called his agent again. Perhaps the adjuster was just having a bad day. Bob had been a loyal customer of the insurance agent for over twenty years. Bob pleaded to have another insurance adjuster look at it and perhaps with an eye to using even more used parts in the car’s repair. The agent agreed to give it a try even if he had to pay the adjuster out of his own pocket. Two days later, Bob received another call from work, this time the adjuster had discovered some minor damage with the engine and air conditioning system and the wire modules although prior market value remained the primary concern. These new findings may impact the salvage price. This adjuster was indicating a value of $13,500 after the deductible. Bob was really stoked and called a school buddy who was now a local attorney and shared his story. Attorney Roy said he would call the insurance company to see if he could boost the payoff. Insurance companies have a bevy of attorneys who specialize in small print all ready to battle. Attorney Roy with a few calls and faxed letters representing a shot across the bow of the insurance legal department was able to get the payoff up to $15,500 with little hope of getting any more. Bob settled and signed the check over to the bank.

Like many American drivers who have financed their vehicles, they owe more than the car is worth. This is called being upside down. As it turns out, depending on how the wind blows, Bob was trading cars like every two years. Over time, to make deals at the dealership, the shortage of value of the trade-in was added to the new debt and rolled forward in a new car loan all with lender underwriting and approval. The house of cards is built one deal at a time. With most borrowers being payment sensitive, longer terms are sought to keep the family budget in line as a possible justification for making the purchase. However, as in this case, the value of the vehicle turned out to be $9,400 short of paying the debt off of $24,900.00. The house of cards began to fall. Bob had been paying $567.91/month for over a year now and had 60 months to go. With the lien holder getting all the money, that would leave $9,400 left or roughly 17 payments to go on what turned out to be dead money.

Bob and his wife, Muriel, were beside themselves. Here they had a $567.91/month payment and nothing to drive. The finance company insisted on receiving all the money and would not reduce any payments. Bob and Muriel had just started getting back on track from some shaky credit the past six months due to some unexpected home repairs and medical bills. They had refinanced their home a year ago and had little equity at the moment. What to do they ask themselves? Bob and Muriel took delivery of the salvage vehicle. They ran ads in the local paper under auto parts and sold the engine, transmission, three doors that were good, the tires and wheels and junked the remainder for scrap and were only able to raise about $1,100 dollars due to the extensive damage on the car. The salvage yard was offering $600. The parts sale amounted to about two payments. However, Bob needed a car so he took the $1,100 and bought a beater used car for cash. At work, Bob learned of a co-worker who had a similar situation but owned like $13,000 in dead money from being upside down and due to the aggressive collection efforts by the bank, decided to go Chapter 7 bankruptcy by meeting the means test of not making too much money. His co-worker was renting a home at the time and had a mountain of credit card debt as well and not able to make choke this last payment down without the use of the vehicle as well. Bob and Muriel, however, took the bull by the horns and both got part time jobs and vowed to payoff the dead money on the totaled car as soon as possible. They were able to do it in six months and were actually starting to save a little money very week vowing to not get caught again in this death cycle of debt. Questions such as “Do we want it?” or “Do we need it?” were now asked before ANY purchase.

All that glitters is not gold. Bob and Muriel found out the hard way about being under insured on their auto and where they owed more than it was worth. If anyone finds themselves in that situation, it will be necessary to break the cycle by paying down the loan in say 48 months in hopes that the value will hold long enough for the debt to go down below it. The alternative is devastating. While driving up and down the roads, due to aggressive selling and lending polices, you will find many vehicle owners who are upside down on the value versus debt. There might be one in front of you, beside you, or in back of you. There is only one sure way to find out. WHAM. One might be able to escape when an accident occurs IF the automobile is NOT TOTALLED. If the car is totaled and the owner is upside down then they will need to hold on for a roller coaster ride. Avoiding the symptoms of this malady is the only cure. Pay down the car note quickly otherwise the thin ice will not hold the weight of a ton of debt. The Credit Coroner’s report showed “Death by drowning in debt while being upside down and turned around.”