How Voluntary Repossession Works

Understanding Voluntary Repossession

In a voluntary repossession, you return your vehicle to your lender when you are unable to make payments. You inform your lender you will not make payments going forward and that you want to surrender the car. Then, you schedule a time and place where you bring the vehicle (and a ride home), and you turn over the keys.

The process is voluntary because you request and arrange everything instead of waiting for your lender to come and get the vehicle. Just like with a repossession initiated by the lender, if the car sells for less than your balance, you'd still owe money to the lender.

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How a voluntary repossession affects your finances

A voluntary repossession doesn’t necessarily rid you of all financial obligation. In fact, it could take its toll on your finances in a few ways.

Overpaying on your car loan? See My Refinance Options

You may still owe money to the lender

The lender may try to sell the vehicle to make up as much of the remaining balance of the loan as possible. You’ll be responsible for paying any balance after the sale, along with any fees, like late-payment or prepayment fees. If you aren’t able to pay, your account could be turned over to a collection agency, which would show up in your credit history. The lender might also take you to court, which could result in a portion of your income going to the lender to pay back the remaining balance you owe.

It will show up on your credit reports

A voluntary repossession — along with any resulting collections or court judgements — can remain on your credit reports for up to seven years as a derogatory mark. According to Experian, one of the three main consumer credit bureaus, your credit report will list “voluntary surrender” instead of “repossession,” which may do slightly less damage to your credit.

It could affect your ability to get a loan in the future

The negative impact to your credit may make it more difficult to get a loan down the road. If you do get approved, lenders will likely charge a higher interest rate due to the higher risk of defaulting on the loan.

Can filing for bankruptcy help save your car?

Sometimes bankruptcy can prevent your car from being repossessed. However, it’s important to check your eligibility and understand the ramifications of bankruptcy. Just like a car repossession, it has long-lasting effects on your credit scores.

So how can a bankruptcy potentially help you keep your car? The first option, which is a little complicated, is through a Chapter 7 bankruptcy. You must meet certain income maximums to qualify for a Chapter 7. If you do, you’ll need to fill out a Statement of Intention explaining how you’d like to handle your debt.

Redemption

The first option for a car loan is a redemption, which allows you to pay off the current market value of the car. The downside is that you must pay it in a single lump sum. But the good thing is that if you owe more than the current value, the deficiency is discharged.

Reaffirmation

Your other option in Chapter 7 is a reaffirmation, which provides a new contract between you and your lender. You continue to make monthly payments but must accept full liability, which means you can’t discharge the debt.

To make this work, however, the judge must believe that you have the financial ability to make those monthly car loan payments. Otherwise, you could still have your car repossessed. Chapter 13 works a little differently than a Chapter 7 bankruptcy.

Rather than having debts discharged, you go on a three to five-year payment plan with your creditors. You may be able to get your car loan included in your payment plan.

You’ll have a single monthly payment each month that is then divvied out amongst your participating creditors. Oftentimes, you end up paying much less than what is originally owed, and at the end of the repayment term, your debts are considered settled.

Can you return a car you just bought?

In general, you can't return a car you just bought. As soon as you sign the sales contract, the purchase is legally binding. If you're experiencing buyer's remorse, you could contact the dealer and ask, but there are no guarantees. If the car is a lemon, you can typically return it once it's been established that the car has ongoing issues.

What is a Deficiency Judgment?

When a repo man retakes possession of your property, they may be able to pursue you in civil court for the difference in your loan subtracted from the actual value of the property reclaimed. For example, if you have a loan with a balance of $50,000, and your car is only worth $30,000 when the creditor repossesses it, they may be able to sue you for the difference of $20,000. Deficiency judgments are legal in varying states, including Pennsylvania, under differing circumstances. Under Pennsylvania law, a deficiency judgment creates a judgment lien on a debtor’s property. Continuing the above example, if you own a home, the judgment for $20,000 will be a lien against your property. This means, that if you ever wish to sell your property, you will have to pay back the judgment through the proceeds of the sale.

It’s important you discuss your situation with your legal team so they can mount the most effective defense possible in working to preserve your income and ownership of any real property that a creditor might go after to satisfy the judgment.

Does Voluntary Repo Affect Your Credit?

Any failure to pay a lender according to the terms of a loan agreement can hurt your credit score. Typically, lenders report default to the major credit bureaus when it is more than 30 days late. Voluntary car repossession will be recorded as a voluntary surrender on your credit report, whereas involuntary seizure of the vehicle will appear as repossession. In either scenario, this will remain on your credit score for seven years, though its impact will wane after a few years if you stay on top of your debt. While there isn’t a set credit score needed to refinance auto loans, dipping below 660 will make it harder to qualify for prime loan terms. Still, borrowers with less than ideal credit can explore guaranteed auto financing

We Can Help

Maybe you had a serious illness. Maybe you lost your job or had your hours cut back. There are plenty of reasons you might fall behind on your auto loan, but it’s always frustrating and upsetting. The good news is that you have options. Don’t let a lender pressure you into making a decision that isn’t right for you – take the time to decide what’s best for you. That may mean selling the car yourself or it may mean voluntary repossession or it may mean a bankruptcy.

If you’re struggling with your car loan or other debt, we may be able to help. Contact us today for a free case evaluation and consultation to learn about your options for dealing with debt.

What Happens if you Surrender your Car?

A voluntary repossession isn’t really all that different from a regular repossession. Instead of waiting for a repo agent to come and pick up your car, you simply give it up yourself. The bank will then sell it at auction. They’ll take the amount they got at auction and subtract the cost of storage, running the auction, and other administrative fees. Those extra costs can run into the thousands of dollars. What’s leftover after those costs are covered is called your “net.” That amount gets applied toward paying back your loan. If there’s a deficiency, you’re still on the hook and they’ll send the account to collections.

If the collection agents can’t convince you to pay, they’ll sue you for collection. If they win that lawsuit, they can ask the court to garnish your wages to pay off the debt. Plus, you’ll have to pay court fees and potentially attorney’s fees.

This process will have a serious impact on your credit report – it still counts as a repossession. Wage garnishment and judgment debt also negatively impact your score.

Voluntary Repo vs Involuntary Repo

Losing a vehicle is not an ideal outcome. But there are some differences when a lender takes back a vehicle by voluntary repo versus involuntary repo. If a borrower is unresponsive, lenders may resort to involuntary repossession. This can involve hiring a third-party repossession agent to seize the vehicle. GPS tracking makes it possible for agents to take the vehicle from anywhere at any time, even if it’s on your property. Lenders may also have the right to use a “kill switch” to remotely deactivate a vehicle depending on the loan agreement and state laws. In either case, involuntary repossession can create a stressful and inconvenient situation. With voluntary repossession, the lender is spared the effort and cost of acquiring the vehicle. This cooperation may help work out a deal with the lender and obtain more favorable terms when refinancing after repossession

Voluntary Repossession vs. Forced Repossession

While both voluntary and forced repossessions result in losing your car, there are a few advantages of choosing to turn in your car on your own. The most obvious, of course, is that you get to be in control of the situation and avoid the repo man. A voluntary surrender helps you avoid a potentially embarrassing situation.

You won’t have to worry about when your car will be towed, like at work in front of your colleagues or at home in front of your family. Instead, you get to arrange for a scheduled drop-off.

You also don’t have to worry about getting your personal property back out of the car after it’s been towed. This can be difficult, depending on the details of your auto loan agreement. In addition, you may only have 24 hours to make arrangements to retrieve your belongings, so it’s better to avoid this situation altogether.

A Voluntary Repossession Can Save You Money

You could save as much as several hundred dollars by voluntarily surrendering your vehicle. That’s because you are responsible for any fees the lender incurs as part of the repossession process. This not only includes the towing of your vehicle but also having it stored before the auction occurs.

Collectively, these fees can start to add up. Several hundred dollars may not seem like a lot in the grand scheme of losing your car. However, it could set you back further on some of your other financial obligations.

So it’s really best to avoid a forced repossession if at all possible. If you know that repossession is inevitable, a voluntary surrender on your own terms might be in your best interest, both emotionally and financially.

Pros and cons of voluntary repossession

In general, if you can avoid a repo, you should do so. However, if you can’t, a voluntary repo will almost always be better than an involuntary one.

Before making a decision, take some time to consider both the advantages and disadvantages of voluntary repossession.

Pros of voluntary surrender

Voluntary repossession has three key advantages:

  • You save money: If you don’t do anything about a defaulted loan and your creditor forcibly seizes your property, you’ll usually have to pay the towing fee. You can avoid this fee with voluntary surrender.
  • It’s more convenient: If your auto lender decides to repossess your car, they don’t need to notify you—they can even use GPS tracking devices to find and tow your car. 6 You can generally avoid a lot of stress with voluntary surrender because you get to choose when and where to hand your property over.
  • Lenders prefer it: As mentioned, most lenders (as well as the credit scoring models) treat voluntary repossession more favorably than involuntary repossession. If you can’t avoid the repo entirely, surrendering your property may protect your credit at least a little bit. It will also make your former lender more favorably disposed to you if you try to buy your car back after the repossession.

Cons of voluntary surrender

There are also a couple of downsides to voluntarily surrendering your vehicle or another item (on top of the obvious downside that you’ll lose your property):

  • Your credit score will still drop: Voluntary repossession is still a negative mark on your credit report, and willingly returning your car to your auto lender won’t spare your credit score from damage. Once your lender reports your repo to the credit bureaus, you’ll see an immediate drop in your credit score, and it might take a long time to recover.
  • You’ll still have to pay the deficiency balance: If your lender isn’t able to fully compensate for their losses by selling your property, they’ll probably try to collect the rest of your debt, regardless of whether the repossession was voluntary or involuntary.

Voluntary Repossession Doesn’t Cancel out Your Loan

Turning in your vehicle doesn’t let you off the hook for your auto loan. The lender will auction or sell your vehicle and apply the sale proceeds to your loan. If the sale price is less than your loan balance, you’re still responsible for the remaining balance. For example, if you owe $5,000 and the vehicle sells for $3,500, you will still owe $1,500.

The lender may turn the debt over to a debt collection for further collection on the balance and the collector may also place the debt on your credit report. The lender may sue you for the debt and if they win a judgment they may also get court permission to garnish your wages for the remaining balance.

In some states, the lender may be able to gain a deficiency judgment for the loan amount that's still due after the vehicle has been auctioned.

Pennsylvania Bankruptcy Attorneys Offering Free Consultations

Having a vehicle repossessed is not only a financial set-back, it could also be embarrassing. At Young, Marr & Associates, our sympathetic attorneys have over two decades of providing professional and confidential assistance to people under economic stress. It is likely that, if you are on the verge of losing your car, there are other financial problems you are facing. Before you make any decisions, you should consult with one of our experienced Pennsylvania bankruptcy attorneys to see what options are available. Bankruptcy can be an effective tool against repossession and may be able to help get your finances back on track.  To set up a free and private legal consultation with our Bucks County bankruptcy lawyers, call Young, Marr & Associates at (609) 755-3115 in New Jersey or (215) 701-6519 in Pennsylvania or contact our law offices online.

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