Information on Auto Loans and Repossession Advice

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READER QUESTION

What will happen if I walk away from my current auto loan?

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Bills.com Resident Expert
Dec 12, 2011
BILL'S ANSWER

If you "walk away" from your auto loan, your creditor will repossess the vehicle. When a vehicle is repossessed, the lender will sell the car at auction and apply the sale price at auction to the amount that you still owe on the original car loan. If the auction does not net enough money to cover the full balance of the note, which it rarely does, then the original borrower (you) would owe the difference, called a deficiency balance, to the lender. The creditor can collect on the deficiency balance like any other unsecured debt, up to and including filing a lawsuit against the borrower.

Repossession has a real adverse effect on your credit. You can expect this account to remain on your credit report for seven years from the date of the repossession, so you will probably be dealing with credit problems for some time to come.

You may be able to balance the negative impact of the repossession by keeping all of your other accounts current. However, even if all of your other accounts have a perfect payment history, repossession would still hurt your credit score. Luckily, the more time that passes from the date of the repossession, the less the repo will affect your credit score, so as time passes, you should see your credit score improve.

Deficiency balance

Even if you surrender your vehicle to your lender voluntarily, the lender has the legal right to collect on any balance remaining on the debt after the car is sold at auction. This type of debt is referred to as a "deficiency balance." The creditor may even file a lawsuit against you to collect on the unpaid deficiency balance. You should therefore only proceed with a voluntary repossession if you truly cannot afford the loan, as you will likely still owe the lender a significant amount of money, even after you no longer have the use and benefit of the property.

A deficiency balance is an unsecured debt, which the law treats the same as credit card debt, a payday loan, or medical debt, among other consumer debts. To see your rights and options for resolving the deficiency balance, read "Collections Advice."

For more information about credit, credit scoring, and credit reports, I encourage you to visit the Bills.com Credit Resources page.

Sincerely,

Bill

www.bills.com/

Comments (24)


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George L.
Bargersville, IN  |  June 01, 2011
I am self employed and my income has dropped dramatically and I can no longer afford my 680/month RV loan. I am about 15,000 underwater on the loan (about 58,000 loan to 41,000 retail value). I have to cancel my health insurance because I can't afford 1,400 per month (due to age and pre-existing conditions). I have some savings and can cover the loan payoff if i can sell it. I have had it advertised for 4 months with no takers. What are my options?
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Bills.com
June 01, 2011
One options is to speak to your mortgage holder about a short sale. A second option, is to speak to them about a loan modification. A third option is to consult with a bankruptcy attorney. It is possible that a bankruptcy would allow you to retain possession of your residence and have the lien for the home equity loan stripped from the property. Consult with an attorney in your state who has experience in bankruptcy, to learn if this option addresses your needs.
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Bills.com
March 30, 2010
Lenders want three things in a perfect debtor: Stable income; Strong credit history; Low debt-to-income ratio. The 2003 vehicle harms No. 2 (you now have a voluntary repossession on your credit history) and No. 3 (you have a deficiency balance as a debt). If you are asking me to put myself in the shoes of an vehicle finance company, I would not extend you a loan until you clear up the mess relating to the 2003 vehicle. However, I am not your current vehicle lender, and your question is best answered by them.
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Linda R.
Worthington, OH  |  April 17, 2011
Is anyone aware of what happens when the securitization chain is broken relative to NO ORIGINAL auto loan, lease documents that are missing, lost, destroyed by the banks along with the promissory notes of home mortgages-hard to repo what you cannot prove is yours with a WET Loan or Lease Agreement-any comments?
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Bills.com
April 18, 2011
I believe the legal action you are describing is a quiet title. This is a very old area of law that has received a great deal of attention lately. You should be able to find a lawyer in your state who is practicing in this area of law.
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Tammy B.
March 30, 2010
In March 2009, I went to trade in my 2003 vehicle for a 2006. When the dealer pulled my credit report there was no evidence of my 2003 vehicle payments, so I decided to keep the 2003 and let a friend takeover the payments with the car still in my name. So I had two open auto loans in my name with only one at the time reporting on my credit report. My friend lost her job a month later and could no longer make the payments, so I gave the 2003 back and kept my 2006. It has now been 1 year that I have had my 2006 car and I have never been late on one payment. I decided to try and trade it in for a newer vehicle. I found a car that I wanted, the dealer was giving me a great trade amount. When the went to run my credit it showed that I had two open auto loans. One with my current lender and one with my old lender. Because of this, I could not get the vehicle. What do you think my chances are of getting a newer vehicle if I fiance through the same company that I have my current auto loan with?
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Bills.com
October 28, 2009
I'm surprised the bank wanted you to bring the engine and other items to them. I would have expected the bank to want the engine and other parts to be brought to wherever the boat is stored. The boat is about to be auctioned, and you will be required to pay any deficiency balance. An engine-less boat is not going to fetch much at auction, and you having an engine without a boat does you little good. This is a big mess you need to sort out. Get a three-way telephone call with the repossession company, the bank officer handling your loan, and you to work out an arrangement for reuniting the engine with the boat. Then, you need to develop a strategy for handling the deficiency balance. The deficiency balance is an unsecured debt, and is like credit card or medical debt. See What Are My Debt Consolidation Options? and collections advice to understand your rights in the collections process.
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John .
October 27, 2009
I recently surrendered my boat (still owe $68k). I had big plans to upgrade it and not enough money. The Engine and other small items where off the boat at the time of the surrender. Later in the week I tried to make arrangements with the bank and repossession company to give all the items pertaining to the boat back. The repo company had no means to take the items or wanted to. The bank insisted they had to be returned to them. What if any consequences are instore if the bank doesnt get the items back, beside a deficiency suit. Also in my defense had a law enforcement officer standby while i made an attempt to drop off the parts.
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Sam .
April 14, 2009
Heather--unfortunately, the auto lender can, and likely will, pursue you for payment of this loan. I strongly encourage you to consult with your bankruptcy attorney, as you may be able to file a petition with the bankruptcy court requesting that the court hold your ex-husband in contempt for failing to pay the debt, if he was ordered to do so in your divorce decree. As for what you can do to protect yourself, you may want to also discuss bankruptcy with your attorney, as that may be the only way to discharge your liability for this and your other debts; many people file bankruptcy after divorce for the same reason. Depending on your state, the creditor may be able to garnish your wages if it sues you and obtains a judgment; however, filing for bankruptcy protection should prevent such action against you. I wish you the best of luck!
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Heath .
April 14, 2009
I got divorced and my name is on my ex husbandstruck which he didnt pay for and it is now repossed. I cannot afford to pay for it. I got left with the house, boat and all of our credit cards. We owe 28000 on the truck! I am really scared and don't know what to expect. Any suggestions orcomments? Right now my credit is good (715). Can they garnish wages?
Avatar
Bills.com
March 12, 2009
Yes, if the value of the vehicle (when sold) is not enough to cover the balance on the loan, then you will still owe them the deficiency balance. The lender has the right to pursue collections on this balance and there might be possibility that they will sue you. it is a call that only they can take, and i cannot make a prediction as to whether they might or might not.
Thanks for your feedback!

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