A lot of people who leveraged themselves to heavily are now finding themselves pinched because of lay-offs, pay-cuts and a general lack of available financing for those that do not have good credit. To get themselves afloat, many people will take on an extra job, sell some personal possessions and cut back. Others commit insurance fraud by starting their vehicles on fire. I guess that’s -one- way to make some extra cash when you’re in dire straits. Apparently a lot more people have been choosing “option b” in the last year and a half.
The Las Vegas police department has a special automotive theft unit that keeps track of the number of automotive-related arson claims that they receive each year. According to a recent Wall Street Journal article, In 2007, when gas prices began to spike pretty heavily, the number of claims began to jump. In 2008, the rates climbed by 6% nationally. In some harder-hit areas such as Michigan, New York, Indiana, the number of arson rates increased by 15% between 2007 and 2008!
Why are some people so quick to destroy their vehicles and collect on the insurance money? Why not just sell the vehicle they have to reduce the amount of leverage that they have? It turns out that in many of these situations the owners of the vehicles owe more on their vehicles than they are worth and would actually have to cover the difference if they tried to sell their vehicle.
The Wall Street Journal article interviewed a number of different people, including James Quiggle from the Coalition against Insurance Fraud, an industry-backed group. He probably had the best quote in the article, “They look at this as their own personal stimulus package”. Quiggle continued, “the economy is stretching people to the breaking point and some of them are willing to risk criminal conviction.”
Instead of finding a way to get some extra cash, some consumers are deciding that ditching their vehicle, reporting it stolen, collecting the insurance money and paying it off with those funds is a better way to go. This way, they will be free from responsibility to the vehicle and the automotive company and their credit scores will not be damaged. You might not think that protecting one’s credit score would be that important, but apparently to some people, it is.
If you’re in a situation that you have a vehicle that you can’t afford anymore, just sell the vehicle. If you owe more on it than it’s worth, just borrow the difference by getting a small unsecured personal loan through a local bank or credit union or through sites such as Prosper.com and Lending Club, so that you can get your vehicle sold with a clear title.
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