A voluntary repossession happens when you give your vehicle back to the lender. Most people agree to a voluntary repossession when they cannot pay the car payments. It is never easy to give up your car. Before you voluntarily return your car, consider these pros and cons of a voluntary repossession.
A repossession happens when a creditor takes possession of your property because you defaulted on a secured debt. “Secured” means that you gave the lender a lien on collateral. Collateral could be a motor vehicle, furniture, equipment, and other personal property. A voluntary repossession means you agree to surrender your vehicle instead of the lender hiring a repo company to take the car or filing a lawsuit asking the court to seize the vehicle.
You default on your loan agreement if you do not make the payment on the due date. If the loan agreement includes a grace period for late fees, the default date is still the day after the payment is due, not when the lender charges a late fee.
Most lenders do not repossess collateral until the person fails to make several payments. They send a letter asking you to make a payment when you miss your payment. The lender may call you to ask why you did not make a payment. Letters and calls can go on for a few months. However, it is essential to remember that you are in default, and the creditor could repossess the collateral after missing one payment. Lenders have different internal policies for determining when to schedule an account for repossession.
State laws differ regarding the process for repossessing collateral. The process for repossessing specific types of property could differ. For example, some states require creditors to obtain a court order to repossess a motor vehicle. Other states allow creditors to repo a car if the repossession is “peaceful.”
A “peaceful” repossession typically means no one tries to stop the repo from happening, such as going outside and telling the repo company not to take your car. Many repossession companies take cars when one is at home, at night when everyone is asleep, or at your job when you are busy with work. By doing so, the repo workers can take the car “peacefully” because you do not know you need to stop them.
Many states require the lender to send a notice giving you a specific deadline to make a payment, or it will repossess the collateral. However, the law might not require proof of delivery. Therefore, all a lender needs is a copy of a letter in your file as “proof” it complied with state repossession laws.
A bankruptcy lawyer practicing in your state can advise you about your state’s repossession laws and your legal rights.
The lender sells the property and uses the funds to pay the loan. For example, most creditors sell repossessed vehicles at repo auctions. People bid on the vehicles, and the highest bidder wins. Typically, the amounts paid at auction are lower than the fair market value of the items offered for auction. Therefore, most people still owe money on the account, even after their vehicle is sold and the money is applied to the loan.
If the repossession does not pay off your loan balance in full, the amount you owe on the account is called a deficiency. In most states, creditors can file a debt collection lawsuit seeking a deficiency judgment. If state law allows wage garnishment for personal judgments, your wages could be garnished until the deficiency judgment is paid in full.
The same situation applies with a voluntary repossession, unless the lender waives the right to seek a deficiency judgment if you voluntarily surrender the vehicle. However, voluntarily surrendering the vehicle gives you more control when you lose the vehicle, which has some advantages.
If the creditor sends a repo company, you typically do not have any notice of when your car could be taken. As a result, you might wake up one morning or leave work and your car is gone. Therefore, you have no time to remove your personal items from the car or arrange for new transportation.
If you wait for the lender to act, it could cause more damage to your credit score. The lender reports the default to the credit reporting bureaus each month you do not make a payment. By surrendering your vehicle, the creditor stops reporting late payments.
The delinquent account and repossession remain on your credit report. However, if you know a repossession is unavoidable, voluntary repossession reduces additional negative information being reported to the credit bureaus while you wait for the creditor to repossess your car.
Bankruptcy helps people who cannot afford to pay their debts.
Filing Chapter 7 could prevent a repossession on your credit report and stop a deficiency judgment. When you file a Chapter 7 bankruptcy case, the automatic stay prevents the creditor from repossessing your vehicle. The lender must file a motion to modify the automatic stay to repossess the vehicle during your Chapter 7 case. Otherwise, the lender waits until your bankruptcy case closes to repo the car.
Furthermore, when you surrender a vehicle during bankruptcy, the surrender is in full satisfaction of the debt. The lender cannot file a lawsuit asking for a deficiency judgment, even if the lender does not receive payment in full for the loan amount. Furthermore, the debt is shown as being included in bankruptcy instead of repossession on your credit report.
Filing Chapter 13 could help you save your car. You can include the car payments in your Chapter 13 plan. In many cases, a debt qualifies to lower their monthly car payments and decrease the interest rate on the loan.
Try our free Chapter 7 calculator to determine if you qualify for Chapter 7 and how it might help you with your debts. You can also try our free Chapter 13 calculator to estimate how much a Chapter 13 plan payment might be if you file Chapter 13 to reorganize your debts.
Ascend can help you find a bankruptcy attorney near your home. Most bankruptcy lawyers offer free consultations. You learn more about bankruptcy and how filing bankruptcy can get rid of debts.
If you cannot pay your car payments or other debts, Ascend wants to help. We help you explore your debt relief options, including:
Text or call Ascend at (833) 272-3631 or contact us online for a free case evaluation.
