- 1 What is a voluntary repossession?
- 2 Voluntary Repossession - Is It A Good Idea?
- 3 Is Voluntary Repossession Bad for Your Credit?
- 4 If we do a voluntary repo of a car how bad will that affect a credit score
What is a voluntary repossession?
We often hear the words voluntary repo or voluntary repossession and some of us think what exactly is a voluntary repo as opposed to an involuntary and how does that work exactly. I will try to explain the differences below and the effects either may have on your future of obtaining a loan especially on another car.
A voluntary repo can happen a few different ways
The most common way is the typical family that realizes they have accumulated far too much debt, too many bills coming in from all angles and there is just no way they can afford to to make this car payment any longer. Rather than waiting until the gets into repossession status, they will call the bank, in many cases the actual loan officer of the bank or just call the dealership finance company letting them know that they can no longer make the payments. At this point the car is usually not yet in default so the bank or finance company will make a note of the call knowing that these people are willing to just turn over the car. Banks prefer voluntary as the Voluntary repossession is a cheaper payout to the agent. I can’t tell you exactly how much cheaper as we never got voluntaries ever but I have heard of companies doing them for around the $150.00 range. I couldn’t see doing it for a penny less than that, in fact I will do a post here explaining how some repo agents are just trying to undercut everyone else to death in order to gain new business.
The second most common way for a voluntary repo is when a car gets into repossession status and the debtor receives calls from the bank asking for payment, or asking when will payment be coming on the car, in essence creating a file of everything said by way of phone. I remember having access to my clients, the banks systems able to see the exact notes from the collectors because many times a person will say they are voluntarily giving up the car but have a change of thought and that car quickly becomes a skip trace. Of coarse the bank or finance company can get lucky and the debtor will say ok come and get it at my address after 6pm. The bank will put it out as a voluntary and get it done cheap, many times if the car doesn’t show the first time the repossession agent will bill for a full repo with notes that the voluntary didn’t show.
Many times a skip trace before being sent out as a skip trace will turn into a voluntary repo once the bank discloses they have the new address. It could have been that the bank had not updated the phone or address and had no way of contacting the debtor. However once a new phone number is obtained the people say “ok sure come pick it up” will be sent out as a voluntary. It’s the case of if they find me, i will give it up right aaway type thing.
Voluntary repossession is much better on the credit report listed as such as it shows those in the future looking at your credit that you volunteered to turn in the car as you knew you had a problem continuing to pay. A credit report will also list an involuntary repo and the amount of time it took to get the car which a finance company may decide against extending credit to someone who is going to hide the car purposely.
I know, its tough to give up a car that you put 2 to 5k down on, or a car you have been paying for 2 or 3 years on but in reality the bank still owns the car until it is paid. The best bet is to avoid the repossession or if you are really in trouble call the bank and turn it in to have some kind of decent statement on the credit report moving forward.
Voluntary Repossession - Is It A Good Idea?
If you can’t make your car payments, what are your options? If you don’t keep up with your loan, the bank may repossess your car. However, you can also simply walk away from the car and the loan. It’s called a “voluntary repossession.”
Here are a few of the big takeaways:
- Your lender can repossess your car if you don’t make payments
- You may choose to surrender your car voluntarily instead
- Your car will be sold at auction and you’ll be liable for the deficiency
- You may face a collection lawsuit and wage garnishment for the deficiency
- It will count as a repossession on your credit report
- If possible, it’s better to sell the car on your own
- Bankruptcy can also stop repossession and wipe out a deficiency
When you take out a loan to buy a car, you give the bank a “security interest.” That means the bank has the right to take the car if you don’t pay back the loan. The bank will then sell that repossessed car and apply the proceeds against your loan. Most of the time, the car will sell for less than you owe and you’ll still be on the hook for the difference. That’s called a deficiency. You’ll also have to cover the costs of the repo agent, the storage of your car between the repo and the auction, and other administrative costs.
What Is A Voluntary Repossession?
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.
The name makes it sound less severe, but a voluntary repossession is essentially the same as an involuntary one as far as your finances go. You’ll still have to pay for the costs of the auction. You may still face a deficiency, a collection lawsuit, and wage garnishment. Worse, repossessed cars frequently sell for far less than they’re worth at auction. That leaves you with even more of a deficiency than you should have based on the car’s value. The real difference is that by turning your car in voluntary at a prearranged time and place, you avoid paying the fee for a repo agent and for storage.
Alternatives to Voluntary Repossession
Long story short, repossession is an expensive and inconvenient way of getting out of your car loan, voluntary or not. If you can’t make your payments, you’re typically better off selling the car yourself – you’ll get a lot more for it. You do have to pay off your loan in order to sell the car, so that may require borrowing enough money from friends and family to cover the rest of your loan and get the car sold. It may even be worthwhile to put some of that balance on your credit card rather than go through the repo process.
If you can’t find a way to sell the car, reach out to your lender to ask about your options. If you’re dealing with a temporary financial issue, they may be willing to work with you to help you keep your car.
If you can’t adjust your loan or sell the car, then you can work with your bank to coordinate the voluntary repossession process. That will help you minimize the storage and administrative fees and get the most out of the auction. You may even be able to negotiate with your bank to accept the car as payment in full of the loan so you don’t have to worry about a deficiency. However, you should know that any amount of debt that is forgiven will be counted as income and you’ll have to pay taxes on it. Surrendering your car voluntarily may also have a slightly less serious impact on your credit score than waiting for a regular repossession.
There’s also another alternative: bankruptcy. It will stop any collection actions and give you the chance to work out your finances – you may even be able to keep your car. Whether you keep your car or not, bankruptcy will wipe out your liability for any deficiency if the car is later repossessed and sold for less than you owe. Remember that bankruptcy will affect all of your finances, not just your car loan, so you’ll need to speak to an experienced bankruptcy attorney to determine whether it’s a good option for you.
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.
Is Voluntary Repossession Bad for Your Credit?
How Does Bankruptcy Affect Custody and Child Support?
If you fail to make timely payments on your car, the lender may try to recoup their financial loss by physically taking the vehicle in a process known as repossession. While repossession is often an involuntary procedure, there is also an alternative called voluntary repossession, or voluntary surrender. How does voluntary repossession work? And could it damage your credit? Our bankruptcy attorneys weigh in.
What is Voluntary Repossession?
There is no way to hide an inability to pay off your loans, and in fact, dodging your creditors can make the situation worse. If you think you are at risk of repossession, you should notify your lender immediately and try to explain your financial situation. Some creditors will be understanding and will work with you to negotiate a late payment — but unfortunately, not all are so flexible.
If your creditor is unwilling to accept a late payment and insists on repossession, you may be able to convince them to settle (i.e. reduce) your debt in exchange for offering a voluntary repossession. However, whether a repossession is voluntary or not, you will still have to pay off whatever balance remains after the creditor sells the car and applies the sale proceeds to the loan, known as the deficiency balance. Furthermore, volunteering to surrender your vehicle will not necessarily prevent the creditor from noting the late payment — or the repossession — on your credit report.
This brings up an important question…
Will Voluntary Repossession Hurt My Credit Score?
On one hand, voluntary surrender is slightly preferable to involuntary repossession in that it demonstrates a willingness to work with your creditors. It can also save you the worry of having your car unexpectedly repossessed in front of your friends or family, which is a major emotional benefit.
But unfortunately, the difference to the negative impact on your credit score is minimal.
Yes, you returned the vehicle willingly; but from a lender’s perspective, the bottom line is the same. Voluntary or not, a repossession is a repossession — and ultimately, an indicator that a debtor failed to keep up with their payments.
As one Experian spokesperson explains, “You will be viewed as high risk and will likely pay a much higher interest rate if you can get approved for a new loan at all.” Experian also cautions, “It is considered very negative and would almost certainly have a substantial impact on your credit report and credit scores. A voluntary surrender should be your last resort.”
Should I Surrender My Car if I’m Filing for Bankruptcy?
If you’re struggling financially, there may be a better plan than giving your car up for voluntary repossession: filing for bankruptcy. In fact, bankruptcy may even help you keep your car.
Whether you file for Chapter 7 or Chapter 13, you’re still entitled to the protections of something called the automatic stay. Taking effect as soon as you file, the automatic stay protects you from collection actions like wage garnishment, foreclosure… and, you guessed it, auto repossession. Not only does the automatic stay freeze collection actions, it also gives you additional time to negotiate a possible solution with your creditors.
However, the strength of the stay depends partially on what comes beforehand.
When you file for Chapter 7, you must submit a form called your Statement of Intention (Form 8). True to its name, this form outlines how you intend to approach your debts, including whether various pieces of property will be surrendered or retained. If you indicate on your Statement of Intention that you plan to surrender the car, your creditors may file a motion requesting that the bankruptcy judge lift the stay which protects your car, since you were going to give it up anyway. (On the positive side, you will not be liable for the deficiency balance, which is included in the Chapter 7 discharge.)
If you do not wish to surrender the car, you have two other options: redemption, and reaffirmation.
If you redeem, you will have to pay off the vehicle’s present-day market value in a single-sitting lump sum. If the market value doesn’t cover the price you originally paid, the difference can be discharged.
If you reaffirm, you and your creditor will sign a contract stating you can keep the vehicle, on two conditions: you must continue to make your payments, and you accept full liability for the debt. In other words, you waive your right to discharge, which means you must be able to convince the court you will actually be able to pay. If the court thinks you don’t have sufficient funds to realistically cover the car, the judge may allow for a repossession to proceed, so it’s very important to be represented by an experienced bankruptcy lawyer.
Chapter 13 does not include a Statement of Intention, because it utilizes a three- to five-year repayment plan instead. However, you can use the repayment plan to pay off your auto loans, including missed payments, provided you continue to meet the terms of your plan.
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, call Young, Marr & Associates at (609) 755 3115 in New Jersey or (215) 701 6519 in Pennsylvania or contact our law offices online.
If we do a voluntary repo of a car how bad will that affect a credit score
my husband and I are going to file for divorce the only things we have together are a car and a house, the house is in my name but he is keeping it as it was his moms home i just happened to buy it because his credit was not any good, we do have a car together but that is in his name I will never be able to get a loan to take over the car how will that affect his credit if he does a voluntary repo? with him keeping the house he will need to get a morg of his own in a year?
It will certainly ding his credit; it's not possible to predict how bad it will be.
Depending on circumstances (What's his credit score now? How much of a mortgage does he plan to get? How much money does he plan to save with a lower interest rate Etc.) it may be better to sell the car at a loss and negotiate a payment plan with the creditor.
That said: These types of situations are complex. I often have people come in a year after divorce when they realize that their self-drafted settlement agreements have gaping holes, or fail to address major issues. By that time it is often too late. You should really contact an attorney for assistance, or you risk major problems down the road.
Do you want accurate, personalized, legal advice that you can rely on? You will have to hire an attorney, not ask on Avvo. I am not your attorney and am not creating an attorney-client relationship by this post. I am therefore giving only general advice. This advice may not apply to you or your situation; may not take account of all possibilities, and may not match the advice I would give to a client. DO NOT rely on this advice or any other advice on Avvo to make your legal decisions. If you want an answer to a legal question you should retain an attorney who is licensed in your state.