[Scott Douglas]

I count myself very lucky in that the worst case for my kids was when my daughter backed our Odyssey van out of the driveway and into a neighbors car which was parked across the street in what was not considered a parking space and was usually empty. I paid them $500 and they got it fixed themselves (for a lot less I'd imagine) but no insurance company involvement on either parties part. I figured I came out way ahead on that as it only cost me a tail light for the van and some touch up paint.
We have friends whose daughter was given a brand new car by her grandmother upon graduating from HS. That car was totaled within a year do to inattentive driving.
The last Honda I sold privately I really had to learn about letting go. I got full price for it so no problem there. I saw the car a couple years later carrying a bale of hay in the trunk. Paint was thrashed and the headliner was sagging. It was perfect when I sold it as it had always been garaged and cleaned on a regular basis. I was proud of it. The kid whose dad bought it for her not so much.
I would have no problem not selling the car in the OP. It may sound hard hearted but you owe this 'friend' nothing. What about your kids? I'd keep it for them if they want it. If not, use it to fund something they do want, just make sure they put some sweat equity into it so they will take 'ownership' more seriously.