All about voluntary repossession

Bills.com > Manage Debt > Deal with Debt > Debt Relief Q&A > All about voluntary repossession
READER QUESTION

What is the difference between a voluntary repossession and one where the vehicle is snatched by a repossession person from the auto or home lender?

Read full question
Repossession
Bills.com Resident Expert
Dec 28, 2011
HIGHLIGHTS
  • Learn the differences between a voluntary repossession and standard repossession.
  • Understand your responsibilities regarding a deficiency balance you will owe.
  • Get help with your debt if you cannot manage the debt payoff on your own.
BILL'S ANSWER

Repossession is where a creditor holding the title to property takes possession of the property from the debtor.  It is typically related to an automobile repossession, but can also apply to any asset and there is such a thing as a voluntary house repossession.

What is voluntary repossession?

"Voluntary repossession" is a term used to describe a situation in which a consumer voluntarily surrenders the property securing a loan, such as an automobile, to the lender that financed the purchase. Voluntary repossessions generally occur when a consumer has fallen behind on his or her loan payments, and decides to surrender the property rather than forcing the creditor to proceed with repossession. Voluntary repossessions occur most frequently with vehicles, but can occur with any type of secured loan, such as the purchase of work equipment, jewelry, etc.

Quick tip  Struggling with debt? Contact one of Bills.com's pre-screened debt providers for a free, no-hassle debt relief quote.

Now, onto to your questions about voluntary repossession. To voluntarily surrender your automobile or other property to the lender that financed its purchase, you would first need to contact the creditor to explain the fact that you can no longer afford your monthly payments, and that you wish to surrender the property. At that point, the lender will likely provide you with a location at which you can safely turn over the property, and tell you any details you need to know about its procedures for processing voluntary repossessions.

Do not be surprised if your creditor is resistant to your request to voluntarily surrender your vehicle; the lender will likely try to work with you to figure out a way for you to keep the loan current and retain the property. These efforts may actually help you in figuring out a way to maintain the loan. However, if you are sure that you cannot afford the loan payments, voluntarily surrendering your vehicle can be a reasonable choice.

How does a voluntary repossession compare to a standard repossession?

 In regard to your credit, both a voluntary repossession and a standard repossession have the same effect on your credit rating. They will both appear as repossessions, and will both result in a significant negative mark on your credit history. A repossession will appear on a credit report for 7.5 years from the date of first delinquency. You will likely see your credit score drop substantially, as having a repossession in your credit history marks you as a credit risk. (Watch the Bills.com video Credit Score Advice to learn more about your credit score.)

However, if you truly cannot afford your car payments and are falling behind, it is likely that your vehicle will be forcefully repossessed if you do not take the initiative to surrender it first. The primary benefit of a voluntary repossession is that the costs associated with the process tend to be significantly less than those associated with a forced repossession, which could save you a lot of money as you work to pay off the remaining balance of the debt.

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 and credit scoring, I encourage you to visit the credit help page. In addition, Bills.com offers a wealth of information for consumers struggling with their debts, available on the debt help page.

I wish you the best of luck in resolving your financial difficulties.

I hope this information helps you Find. Learn & Save.

Best,

Bill

Bills.com

This page is closed to new comments.
Please read the article and prior comments in order to resolve your question.

Comments (293)


Avatar
Ryan L.
Indianapolis, IN  |  June 20, 2011
Wow, longest comment thread I have seen in awhile. Just like everybody else, my situation is totally unique. heh. I'm a deadbeat degenerate who seems to fall through a lot of cracks. I'm 30, I have an upside-down loan on a car which, for legal reasons, I won't be able to drive for 5-10 years. Unfortunately, there is a bit of damage to the vehicle -- in addition to the amount of money I owe. For whatever reason, I fell through the cracks and my lack of insurance was never noticed by the major credit provider nor title state. I estimate that the car, in perfect shape, would bring about three grand less than I owe _retail_, and the fact that there is a bit of damage will drop it to nothing at auction. I am now gainfully employed, but hovering around the 30-day grace period on current payments. At this point, I don't know if it would be best that I surrender the vehicle and arrange structured payments on the balance or just hang on to it. I do love the car. Meh. Depression.
Avatar
Bills.com
June 21, 2011
Regarding your question, vehicle lenders have all of the cars and trucks they want. What they really want is their borrower's money. What this means is that if you want the car, negotiate a payment plan to keep it. If you do not want it, negotiate a tactic with the lender for you to sell it and pay off the deficiency balance.
Avatar
Christine A.
June 14, 2011
I have a 2 vehicles, one of which is owned outright and one is financed. The vehicle that is financed is one payment away from being repossessed (which isn't a huge problem for me as I owe a large amount and it isn't currently driveable and have decided to keep the other vehicle). I am currently in the process of filing for bankruptcy (although the paperwork isn't complete). My question is will the repossession of my vehicle negatively impact my bankruptcy filing? I understand that bankruptcy is the most detrimental to ones credit but I wasn't sure if the amount owed to the creditor would still be "covered" by the filing. If that makes sense... Thanks :)
Avatar
Bills.com
June 14, 2011
Filing incomplete or false documents in a bankruptcy will harm your ability to complete a bankruptcy successfully. See the Bills.com bankruptcy section to learn more.
Avatar
Christine A.
June 14, 2011
I have no intention of filing any false information...either way I owe this creditor and have no way of paying them. I am going ahead with the bankruptcy as I have met with a trustee and they have recommended that I do so...my question was does it matter in which order this happens? Either way it is going to be repossessed from me. Sorry for the confusion.
Avatar
Bills.com
June 14, 2011
The order does not matter. Consult with a bankruptcy attorney to verify my statement.
Avatar
Jo B.
Dearborn Heights, MI  |  June 08, 2011
My daughter lives in Florida and currently has a PT Cruiser that has more wrong with it than the car is worth and no mechanics know how to fix it without it costing a couple thousand dollars. She cannot use the car as a trade-in, because she is upside down in what she owes and what it's worth. She doesn't have the money to fix the car and is considering buying a new car, and voluntarily surrendering the Cruiser after she gets the new car. We know she will take a hit to her credit and owe the deficiency. But are there any other ramifications to doing this? Right now, she needs a car so she doesn't lose her job, but the PT Cruiser is not running. If she loses her job, the car will still get repossessed and then she might also end up homeless because she won't be able to pay her rent. She is in a bad situation, but doesn't want to make it worse, and no one has any money to lend to fix the PT Cruiser.
Avatar
Bills.com
June 08, 2011
You outlined the downsides of a voluntary repossession — credit score harm and owing the deficiency balance, which can become a problem of its own if unresolved.
Avatar
Shelly S.
El Mirage, AZ  |  May 31, 2011
Several years ago my husband went with his long time buddy to a car dealership to COSIGN on a loan with him. After everything was said and done my husband ended up being the PRIMARY on the loan since he had bettr credit. I was not involved in this transaction or would have PROMPTLY put a stop to it. But regardless, it happened. Well here we are years later....late payments later....and we have all decided that voluntary repo is the route we want to take. The buddy can no longer make the payments, my husband and I can not and WILL not make the payments and we are aware that it will hit my husbands credit, but that is a unfortunate side effect of him being stupid. Here is the problem, Wells Fargo is refusing the request stating that all payment options have not been exhausted. Can they do this and what are are next steps? WE are not going to pay our buddies bills when we have plenty of our own. We are prepared for the hit on his credit and the fact that we will have to pay for any differential money. We just want this done and over with.
Avatar
Bills.com
May 31, 2011
It is difficult to discuss your situation without learning the other payment options Wells Fargo offers. One thought is to suggest to Wells Fargo that you will sell the vehicle yourself, and then send Wells Fargo the proceeds of the sale plus the deficiency balance. That course of action will save you and the bank a lot of time and money.
Avatar
Cora G.
North Lauderdale, FL  |  May 12, 2011
I'M IN A HORRIBLE SITUATION AND WONDERING IF YOU CAN HELP ME OUT HERE? I PURCHASE A CAR BACK IN 2009 AND AFTER HAVING THE CAR FOR BOUT A YEAR IN A HALF, (IN SEPTEMBER OF 2010) I DECIDE TO VOLUNTARY RETURN THE CAR DO TO FINANCE PROBLEMS. I CALLED THE COMPANY REPEATEDLY TO HAVE A SOMEONE P/U THE CAR. THE DEALERSHIP CONSTANTLY TRIED TO MAKE SOME ARRANGEMENTS FOR ME KEEPING THE CALL WHICH I DECLINED....NOW HERE IT IS MAY 2011 AND THE CAR IS STILL HERE ON MY PROPERTY!!! THE FINANCING IS NOW TRYING TO TAKE ME TO COURT FOR NOT ATTEMPTING TO MAKE ANY PAYMENTS....WHAT SHOULD I DO IN THIS MATTER....THIS IS REALLY STRESSING ME OUT!!!!!!!
Avatar
Bills.com
May 13, 2011
Consult with a lawyer in your state who has experience in consumer law. If you cannot afford a lawyer, call your county bar association. Ask for the name of the organization in your area that offers no-cost legal services to people with low or no income. Make an appointment with that organization, and bring all of the documents you have regarding the vehicle loan and the collections to your meeting. The lawyer you meet will advise you accordingly.
Avatar
Miss S.
Beverly Hills, CA  |  May 08, 2011
This may be slightly off the subject, but I just discovered my ex had his car repo'd in 2009, then filed bankruptcy. Now there is a 7K deficiency balance. I never got a notice that the car was in jeopardy of being repo'd OR that is was being sold. Someone told me I can request a deletion if the bank can't produce proof they tried to contact me. Because if they had, I would have happily taken over payments instead of facing all this garbage.
Avatar
Bills.com
May 09, 2011
You wrote, "Someone told me I can request a deletion if the bank can't produce proof they tried to contact me." If the person who told you that was a lawyer licensed to practice law in your state, then I would tend to believe that bit of legal advice. However, I am not aware of any state or federal rule like you described.

Readers: If you are aware of such a rule, please cite it below.
Avatar
Anne G.
Lynn, MA  |  April 22, 2011
My husband lives in MA. He purchaesed a car several years ago and when he could no longer afford the payments he gave back the vehicle. Now they are still trying to say he owes for the car loan, even though they took back the car and resold it, and they are reporting this to his credit report! Is this legal? What can he do?
Avatar
Bills.com
April 22, 2011
Reread the section "Deficiency Balance" in the original answer above to understand what may have happened following the repossession.
Avatar
Jenifer L.
Alden, IL  |  April 20, 2011
I like your article.It's very good.
Thanks for your feedback!
 
  • Articles
  • Ask Bill
Thank you for subscribing!