You perfectly described my story in your blog of 2010. I'm at least $50k upside down on mine, trying to figure out how to "short sale" the boat. Has anyone come to you with any creative ideas? It's caused my marriage all kinds of issues as well.Thanks for writing!
A former dental hygienist of mine told me she and her husband bought a runabout at a boat show (bad, bad idea) used it once and decided they didn't like boating. They didn't know squat about boats, so they didn't bother winterizing it. The first year, it filled up with snow and water and the water in the engine cracked the block. Five years later, the boat is trashed, still sitting in their driveway and they are still making payments on it. People actually do things like this and it amazes me every time. Go visit a boat/RV storage lot sometime - it is an education as to the stupidity of Americans.
1. Stop making payments on the boat, they ruin your credit rating, repossess the boat, ruin your credit rating some more, then sell the boat, send you a bill for the difference, and then sue you and get a judgement when you don't pay, perhaps attach a lien to your other properties, and ruin your credit rating a little more. Obviously this is not an optimal outcome.
2. Find a buyer for the boat at the best price you can get - you may have to spend many weekends polishing it up and making it in best shape. Come up with the difference in cash by selling stock or cashing in investments (note the 10% penalty for cashing in an IRA, and $50,000 would be taxable and also put you into a higher tax bracket. Ouch!). This gets the boat out of your yard, preserves your credit rating, but dings your retirement plan and leaves you with a huge tax bill. Wow, these options really suck!
3. Find a buyer for the boat at the best price you can get - you may have to spend many weekends polishing it up and making it in best shape. Come up with the difference in cash by getting a home equity loan or doing a cash-out refinancing. This gets the boat out of your yard, preserves your credit rating, but increases the balance on your mortgage. Also, getting such a loan is difficult, particularly if you are cash-strapped or have been late on payments on your house, boat, cars, etc.
4. Refinance your house, take out enough money to pay off the boat loan. You can then keep the boat and use it (but like most people, you probably have lost interest by now) or sell it and use the money to pay down your mortgage. This is problematic in that if the boat is $50,000 underwater, then the balance on the loan must be in the hundreds of thousands - and not many people have that kind of equity in their home. And again, banks are not so willing to lend, etc., particularly if the borrower has bad credit.5. Bankruptcy. If you have a lot of other debts, and not a lot of money, you may actually be insolvent. TALK TO AN ATTORNEY (not some help-u-bankrupt joint). It is a STATE LAW question, and in some States, there are very generous terms. For example, generally your retirement plans and 401(k) are protected (which is a good reason to invest in these plans!). In "homestead" States like Florida, your house is protected (which is why O.J. lives there, or did, until he went to jail). Bankruptcy may wipe out some debts. Other debts, you may be forced to work a payout scheme, over time (e.g., five years) with interest and part of the debt wiped out. Again, talk to an Attorney for more details. Yes, this screws up your credit rating - for a while - but gives you a chance to start over.6. Insurance Fraud: You sink or set fire to your boat, and then collect the proceeds. Problem is, the insurance may only pay up to the book value of the boat, which is still less than the loan. So you don't solve the problem. And guess what? The insurance companies are on to this and there is a very good likelihood you may go to jail, not collect, and end up losing your job, declaring bankruptcy, and finding a new special friend in jail. I do not recommend this approach.
7. Short Sale. While banks are willing to go along with "short sales" on houses, I have never heard of one with a boat. With a house, it can take months, if not years, to foreclose, and as a result, the bank can spend tens of thousands of dollars on foreclosure processes and then not get as much for selling the house. A short sale can be a win-win for both parties, as the bank takes a hit, writing down some of the debt, while the homeowner walks away from his down payment. However, these should be negotiated carefully - some times the agreements allow banks to come after you for the debt, and/or it might appear on your credit rating. I have never heard of a bank doing this with a boat, but I suppose it can't hurt to ask.
UPDATE: Tithing Guru Dave Ramsey suggests getting a personal loan from your credit union. This may be possible if you have excellent credit, but in most instances, these upside-down people have missed a payment or two (which is why they want out of the deal) and an unsecured loan is not in the cards. But it is worth a shot. I would suggest also not tithing to a church as Ramsey suggests, as God doesn't need your money and he told me, personally, that he would rather you pay off your boat loan than buy the minister a new Gulfstream jet.