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Question:
FEB 15, 2012

Information on paying off a balance on voluntary repossession

Do I have to sign form that I will pay remaining balance on a voluntary repossession?

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Bill's Answer: Bills.com Resident Expert

In most cases, you are not legally required to sign any document agreeing to pay the remaining balance of the auto loan after repossession. You may be legally liable for any debt still owed after the vehicle is sold, and the creditor may be able to sue you to obtain a judgment for the amount owed; signing a statement admitting to owing the debt will likely only make it easier for the creditor to collect it from you through legal action. Generally speaking, I recommend to consumers who find themselves unable to continue paying their vehicle that they return the car to the bank who financed the loan, or to the dealership which arranged financing, leaving a note explaining that they are unable to make future payments and that they are therefore returning the collateral. Signing a statement obligating you to repay the remaining balance of the note may cause you problems in the future if you find that you need to file bankruptcy or take other action to resolve this debt.

Before taking any action regarding this vehicle, I encourage you to consult with a qualified attorney in your area to discuss your state's laws relating to automobile deficiency balances (the amount owed after the repossessed vehicle is sold at auction). Laws vary from state to state regarding how finance companies may collect on deficiency balances, and how much they can collect, so it is important that you discuss your situation with an attorney to make sure that you are not being asked to pay money that you are not legally required to pay.

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."

I wish you the best of luck in resolving the difficulties you are facing with your vehicle, and hope that the information I have provided helps you Find. Learn. Save.

Best,

Bill

www.Bills.com

Comments (53)


Kristy S.
Dallas, TX  |  December 30, 2011
My husband and I have been working over the last year to clean up our credit to buy a house. Our score is just about where we want it (650) however, we are still about 8 months away from our total down payment needed, which means that our score will continue to rise. In 8 months we will be able to afford a home, but about 40K less of a home than we really want. We have a 2005 Nissan Pathfinder and it has the notorious problem of the coolant and oil leaking and mixing. It has been parked since July 2011, when we first noticed the problem, and we have continued to make the $550/month payments on it since, while incurring a third car payment since we both need a vehicle. Nissan refuses to issue a recall and it is about $7,000 to fix. We are currently in an apartment and are wondering if we let the pathfinder go back to the lender and paid the balance off after it was auctioned, rented a house and saved up our money, would we be able to buy a house in 1-2 years? We definitely hate being in an apartment with our children and want a home, but would rather not settle for a lesser home in 8 months. We know that a reposession is horrible on your credit, but our credit cards are paid off and bad debt is starting to fall off, or is 3-4 years old. Also, if we did do that, would a leanholder be willing to work with us on the status of our account while we are making the payments for the balance on the vehicle? Any help is appreciated.
Bills.com
December 31, 2011
I would be stunned to learn an engine replacement would cost even half the amount you quoted. A Nissan dealer may charge $7,000 for a brand-new engine, but an independent garage can swap in a used engine or rebuild your existing engine for much, much less. Shop around, fix the Pathfinder, and sell it on Craigslist. You may have a deficiency balance to deal with if you sell a functioning vehicle yourself, but it will be much smaller than if you allow the truck to be repossessed.
Rae R.
Los Angeles, CA  |  November 15, 2011
I'm in a similar situation and need advice. I leased a Ford Edge for 36 months. I extended 6 payments total when I couldn't pay my monthly payment. Ford Credit did tell me that I would just have to pay 6 months more than my orig contract and my lease would end on 11/26/11 rather the May 2011. I fell behind 2 months and didn't realize that the extensions also amounted to about $600 of late fees. Ford wrote me a letter asking me to pay the 2 past due pmts along with the $600 late fees before my lease expires on 11/26. I didn't have the money to pay. I received another letter & calls from Ford advising me to make sure I make arrangements to return the car to the original dealership before my lease end date of 11/26. On 11/12/11 I returned the car to the dealership & rec'd the receipt for excess wear & tear charges along with extra mileage & late payments balance. I told the dealer I did not want to purchase another car. He told me that in that case, I will receive a bill in the mail with what I owe and I can call and make payment arrangements for it.

Today is 11/15. A repo man knocked on my door & said he was sent by Ford to pick up the Edge. I told them I already returned it & he asked me where so I told him the dealers name. I'm now afraid that even though I've already returned the car, the repo guy might go to the dealership and take the car. If so, will I incur repo fees and owe the balance of the car I'd they auction it. My lease contract ended already and I only owe the 2 mos plus late fees totaling $1,700. If they auction the vehicle, will they to after me for the entire cost of the car rather than my lease obligation?

Can the repo man still take A car that's been returned to the dealer?
Bills.com
November 16, 2011
The key question is, "Did you return the vehicle to the correct location?" If your lease contract specified that you return it to the location you mentioned, then I do not see how the company that leased the vehicle to you has an argument to include any costs of repossession.
Yetta S.
Fort Bragg, NC  |  October 12, 2011
My husband and i just recently paid off our car. The company we went through had apparently taken over a loan from a voluntary repo we had in 2002 or 2003. Now we are being told that we will not recieve our titles for the paid off vehicle due to the balance we had on a completely different loan. Can they do this ?
Bills.com
October 12, 2011
Dig out the contract you signed for the recently paid-off loan. Look for the phrase "right of offset" in the contract, and read that section of the contract carefully. If a right of offset is allowed, then you agreed to allow the creditor to hold the title of your vehicle hostage. If there is no right of offset, consult with a lawyer in your state who has consumer law experience. You may have a cause of action against the creditor for breach of contract.
Melissa F.
Magnolia, TX  |  September 11, 2011
My husband has been paying monthly payments that are outrageous for 2 yrs now on a 2008 toyota tundra. He recently lost his job and we now can not afford the truck anymore. He has good credit overall. What is your suggestion on what we should do???
Bills.com
September 12, 2011
Sell the vehicle, and get an unsecured loan to pay any deficiency balance.
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Melissa F.
Magnolia, TX  |  September 13, 2011
we still owe $22,000. we wouldn't get anywhere near that if we were to sell it. ???????
Bills.com
September 13, 2011
You can try arranging for a short sale on the vehicle. Your goal would be to get as high a price as possible, with the lender agreeing to the sale. That way, you may end up owing less than if the lender auctions off the car.
Nate L.
Fort Worth, TX  |  April 26, 2011
I was recently arrested for Hindering a Secured Creditor in Texas after I refused to voluntarily get out of the vehicle that was being repossessed in the parking lot of my restaurant. The tow truck attached to the vehicle as my three children and I were in it about to go home. He said, "I've got all night." I called the police, and asked them to remove him from the property. They refused. After they spoke to him, they tried to convince me to voluntarily get out so he could take it. They said he had "an official looking document from the lien holder." I refused, and asked them to "arrest me for something" so that it would all be on record. They didn't want to arrest me, but they wanted me out of the vehicle so that he could take it. After they threatened to "taze" me in front of my kids, which I begged them not to do, they arrested me without further incident. They then removed my children(ages 14,11,9) from the vehicle, and allowed them and my wife to remove our personal belongings before it was towed. After three days of waiting to be arraigned and bail to be set, I was released on bond. Did the police have probable cause to arrest me? Did the repo-man breach the peace?
Bills.com
April 26, 2011
You are asking about Texas Penal Code Ann. § 32.33(c) Hindering Secured Creditors, which is either a felony or misdemeanor depending on the item in question. Criminal cases are extremely fact based — the slightest change in circumstances or intent can make the difference between guilt and innocence. One key element in your case is the behavior of the tow truck operator. In some states, it is illegal for the tow truck operator to repossess a vehicle containing people. In those states (and I have no idea if Texas is one of them) a tow truck operator must disconnect the vehicle in question immediately.

Consult with a Texas lawyer who has experience in criminal law. Ask your lawyer to research how Texas law treats people in vehicles that are about to be towed. He or she will also meet with the district attorney to convince that office to drop the charges, which is your best resolution to this case.
SHAWN ..
April 15, 2011
I have a ? for you about my two repos i was never sent a letter from the lenders saying they were going to sell my vehicles. I am in the military and i was advised that in some states with out this letter i am in no way obligated to pay the remaining balance. I lived in the state of tennessee when they were repossessed that is also the state i bought them in.
Bills.com
April 18, 2011
If the person who told you this information was a lawyer, then what you were told may be accurate. However, if the person was not a lawyer, then I would consider any of the legal advice share with you suspect. I am not a Tennessee lawyer, so I am incompetent to advise you whether Tennessee law outlaws the collection of a deficiency balance on a repossession if the creditor fails to give the notice you described. Consult with the legal services department in your branch of the services to learn if it has any Tennessee lawyers on staff it can call upon to answer your question.

Commonly, the notice you described is not required. Indeed, the creditor need not provide any accounting to a judgment-debtor under law.
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Bills.com
January 20, 2010
If the auction price exceeds the balance of the loan (minus repossession fees) then you are entitled to receive net proceeds from the auction of your vehicle.
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JESSICA V.
Houston, TX  |  March 18, 2011
I voluntarily turned in my vehicle 1 year ago but now would like to repair my credit, so I called the auto finance company and they agreed to a settlement amount and monthly payments. Once full amount of settlement amount is paid off they said they would update my credit reports that it was Settled/paid and that they would show my balance as zero and would not list the settlement agreement. My question is, I see they report monthly to the credit bureaus, the most recent update to my report basically showing late and unpaid. I wonder if I begin making the agreed settlement payments would THEY then be reflected monthly on my report as C for current? Does anyone know how they work? It was Sandtander - a major auto finance company.
Bills.com
March 20, 2011
I think you answered your own question when you wrote, "Once full amount of settlement amount is paid off they said they would update my credit reports..." If you would have written the contract so that it read, "Once payments commence, the creditor shall report the account as current, and when the account is paid in full the creditor will report such..."
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Jessica V.
Houston, TX  |  March 20, 2011
Thank you so much much for replying to my question. Yes, hmmm it does seem I answered my own question. Here is the sentence from the settlement offer... "Upon receipt of payoff, Santander Consumer USA will recognize this debt as settled in full. Once all funds have cleared, we will adjust our records to reflect the settlement of the above referenced account. If you have any questions, please contact the Loss Mitigation Department at.... Thanks, after re-reading this I do see they are not going to touch their records at all until all funds have been received. Its a sum of about 12,000 so guess I got a long wait. :( Thank you again for replying so quickly.
Michael H.
January 20, 2010
dear bill, i lost my job a year ago and became late on the payments on my vehicle. i tried the bankruptcy process but it was dismissed because of my inability to find a job and hire one. i paid my vehicle down from 25000.00 to 2850.00. Needless to say, i lost my vehicle. is it true that if the bank sales the vehicle, that i can sue for the excess value of the vehicle after the balance has been accounted for?
Garbagio .
January 06, 2010
Bill: Thanks for the prompt reply to my question. The only thing I can find on the loan papers that may be a problem is under "Remedies for Default". Line 4 states that "We may take any reasonable action to correct the default or to prevent our loss". There's nothing in the agreement stating 'in plain english' that they can go in to my Wells Fargo checking account. The only reason I want to keep my account with them is because my paychecks are written through this bank and this allows me to cash my paychecks the same day. Also my wife's Social Security checks are direct deposited here as well.
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Bills.com
December 08, 2009
If your vehicle loan was with Bank of America and your checking account was with Wells Fargo (for example) the answer would be clear -- BofA would need to sue you for breech of contract, receive a judgment, and then pursue you and your assets to recoup the deficiency judgment. However, in your case, I am concerned that buried in your Wells Fargo vehicle loan contract are terms that allow Wells Fargo to collect on the deficiency balance privately. Obviously, I do not have access to your loan contract and my concerns are purely speculative. Your safest course of action is to take your loan documents to a California attorney experienced in consumer law and ask him or her to review them and give you an opinion. Alternatively, you may wish to consider shopping for a new bank.
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