Repossession / Voluntary Repossession

Voluntary Repossession: What Happens When You Return Your Car To a Car Dealership?

Written by Ben Tejes
Updated Nov 13th, 2023
The information provided in this article does not, and is not intended to, constitute legal or financial advice; instead, all information, content, and materials available in this article are for general informational purposes only. 

Are you having trouble making the loan payments on your car? Are you in a negative equity position on your car? If so, you might consider returning a car to the car dealership. However, that would only be possible if you owe the car dealer for the car. Otherwise, you would return the car to the company that holds the loan on the automobile. The process is generally referred to as voluntary repossession.

Returning a Car to a Car Dealership – What Should I Expect?

If you take your car to the car dealership that sold you the car, it might purchase the car from you so you can avoid repossession. Some car dealerships advertise that they purchase cars, even when you do not purchase a car from them.

The car dealership calculates what it believes to be a fair price for the car. That price may or may not be fair. You should research the value of your vehicle before going to a car dealership. Tools to help you calculate the value of a motor vehicle include:

Estimate the value of your car using two or more sources to ensure you know how much your car is worth. If you accept the car dealership’s offer, it pays you for your car after signing the documents to transfer the title.

If you owe money on your car, the car dealership only pays you the net amount to purchase your car. The net amount equals the agreed-upon price less the payoff of all loans on your car. For example, if the car dealership agrees to pay $15,000 for your car and you owe $10,000 on the car loan, the dealership gives you a check for $5,000.

However, if you have negative equity in your car, you owe money to sell your car. In other words, if your car is worth $10,000 and you owe $15,000, you would pay the car dealership $5,000. Therefore, taking a car to a car dealership with negative equity will not help if you cannot afford your car payments.

Caution: You Can Be Sued After Your Car Is Repossessed

An auto deficiency is what you owe to a creditor after your repossessed vehicle was sold at an auction and the amount is then applied to your owed amount. In some situations, the lawsuit can be over $5,000 or more as the vehicle may only get a fraction of what you pay for the vehicle, especially if your car is a lemon.

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What Is a Voluntary Repossession?

A voluntary repossession occurs when you return the car to the lender. For example, if you owe a local bank or loan company, you return the vehicle to the company. The company sells the vehicle and applies the money to your loan. If it receives more money for the sale of the car than you owe on the loan, you should receive the sell proceeds left over after paying off the car loan.

However, most cars sold at a repossession auction are sold for less than their fair market value. Therefore, the lender may not receive enough money to pay the loan in full. If so, you owe the remaining amount of the loan to the lender. If you do not pay the amount owed on the account, the lender may take legal action to collect the debt.

IMPORTANT NOTE: You cannot merely drop the car off in the parking lot or other location and leave the keys at the front desk.

The lender must accept possession of the vehicle. If not, the lender is not responsible for what happens to the vehicle. You continue to owe the full debt for the car, even it was damaged or stolen. If the lender does not accept possession of the vehicle, you need to wait until it repossesses the vehicle if you cannot sell it or pay off the loan.

Filing a Lawsuit After a Voluntary Repossession

The lender may file a debt collection lawsuit to recover the remaining money you owe after a voluntary repossession. The lender asks the court to enter a judgment against you for the amount of money you owe. The judgment allows the lender to take other legal actions to collect the debt, such as garnishing your wages and pursuing other assets to pay off the debt.

If you do not respond to a debt collection lawsuit, the judge usually enters a default judgment. Therefore, it is generally in your best interest to answer a debt collection lawsuit. You must file a response in writing and serve a copy to the lender and its attorney.

In your response, demand a full accounting of the debt. In addition, ask for documentation of the repossession sale. You want to ensure that the lender followed the law when it sold the vehicle. Also, you want to ensure that the lender applies all funds to the account and does not charge you fees or costs that are not allowed by law.

Filing Chapter 7 Instead of Choosing Voluntary Repossession

Filing a Chapter 7 bankruptcy case might be better than choosing repossession. Through Chapter 7, you discharge (get rid of) all the debt you owe on your car loan. A bankruptcy discharge prevents the lender from filing a debt collection lawsuit seeking a deficiency judgment. The deficiency is the amount owed after the sale proceeds for the car are applied to the loan balance.

However, you must meet income qualifications to file under Chapter 7. In addition, if you own other property, that property could be subject to liquidation by the Chapter 7 trustee.

Our free Chapter 7 calculator estimates whether you qualify for a bankruptcy discharge in Chapter 7. You can also use our free bankruptcy exemption calculator to help you decide if filing Chapter 7 is the best way to get rid of debts.

Contact Ascend Today for More Information

At Ascend, we can help you evaluate your debt relief options. Filing bankruptcy is not the only way to get rid of debts. Our Savvy debt payoff planner helps you prioritize your debts to save interest and get out of debt faster.

Most of our services are free of charge. Contact us today to discuss how we can help you become debt-free.