Information about voluntary vehicle repossession

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READER QUESTION

Voluntary vehicle repossession: do you know how many points/percent your credit is affected if you have to go this route?

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Repossession
Bills.com Resident Expert
Jan 30, 2012
HIGHLIGHTS
  • Avoid a car repossession whenever possible.
  • Understand the rights of the lender to collect on the money you still owe.
  • Review your options for resolving a deficiency balance debt.
BILL'S ANSWER

Thank you for your question about voluntary car repossession and its effects on your credit score.

Voluntary Repossession Effects

With regard to credit, a voluntary repossession is as bad as a regular repo. It will hurt your score badly for the next several years. Although no one can accurately predict how many points your score will fall, due to the complex way credit scores are calculated, you should expect at least a 100-point drop in score.

Effects of a Repo

If repossession has not happened yet, you should avoid it at all cost. A repossession is one of the worst things that can show on your credit report. Once the vehicle is repossessed, the lender will sell it off in an auction. Not only will they come after you for the difference (called a "deficiency balance") but they will also add all costs for the repossession, towing, storage, auction, reconditioning, late fees, interest, lawyers and anything else they can think of.

This could amount to several thousand dollars and if you do not pay, they can take you to court, get a judgment and then attach bank accounts, garnish wages (if your state allows it) and file liens on any other property you may own such as land and homes. Interest can continue to accrue, even after a judgment has been obtained.

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

All of this activity will show on your credit for seven years and make it difficult to get loans in the future without making large down payments, paying add-on fees, and high interest rates.

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, amongst other consumer debts. To see your rights and options for resolving the deficiency balance, read "Collections Advice."

Readers often ask if there is a requirement that the original creditor provide an accounting of the repossession, including the cost of storage, auction, and so on, to determine the bottom-line number in the deficiency balance. The answer is, probably not. I am aware of no state law that requires creditors to provide an accounting to debtors. Similarly, I am not aware of any rules that explain what can or cannot be included in a deficiency balance. Storage, towing, cleaning, and auction fees are reasonable and would probably be allowed by a judge should the matter ever be litigated.

Reader also ask about charge-off and deficiency balances. The fact that a deficiency balance is charged off (sometimes called written-off) by a creditor does not mean the debt is no longer collectable.

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

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

Best,

Bill

Bills.com

Comments (221)


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Joshua S.
Mishawaka, IN  |  January 30, 2012
If I paid off my repo in full, how long will that take to get off my credit report? Will I be able to get loans, if the credit report says paid in full under my repo?
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Bills.com
January 30, 2012
Under the Fair Credit Reporting Act, most derogatories must be removed from a credit report 7½ years after the date of first delinquency. The date most consumer debts are paid is irrelevant to this rule. (See the link I just mentioned for the exceptions.) Your paying the debt does not remove the derogatory from your credit report, unless you negotiated a pay for delete.

Focus on improving your credit score so the harm caused by the repossession is outweighed by positive activities.
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Joanne M.
Reunion, FL  |  October 28, 2011
My car got repossessed three days ago. I called the bank and tried to pay the past due and late charges plus towing and any additional fees they uncured so that I could get my car back. They refused and called the note due. The next day I went to the towing company to get my belongings from the car. They informed me that my car had been taken to the auction. Can they do that without notifying me, and so soon? I was working on getting a loan to get my car back but it all happened so quick. I was almost done paying this car off and had a perfect history up until two months ago. Now I lost my car and all my belongings from it. This don't seem right. Are there any laws to protect me????
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Bills.com
October 28, 2011
Each state legislature wrote its own repossession rules, which have been interpreted by each state's courts of appeals and supreme courts. Consult with a lawyer in your state who has consumer law experience to learn your rights and liabilities under the circumstances described.

Generally speaking, the lender repossessing the vehicle has the right to the vehicle itself, but not the personal property it contains. The lender can be sued in civil court for conversion if it does not allow you to retrieve your personal property.
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Deanne C.
Irvine, CA  |  October 27, 2011
I purchased a vehicle about 4 months ago. I am having a problem making the payments now. I am thinking about purchasing another vehicle (financed through the same company...I have already been pre-approved) and voluntarily giving up the other vehicle. Can the company repo both vehicles even if I am paying on the 2nd new vehicle. The 2nd new vehicle is not up side down in price.
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Bills.com
October 27, 2011
Read your loan contract. Look for a section called "Right of Offset" that discusses whether the lender has the right to repossess another vehicle or take other actions against the borrower if the borrower defaults on another loan. If there is no section like this in your contract, then it may not repossess Vehicle 2 if it repossesses Vehicle 1, which results in a deficiency balance.
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Parthengia K.
Charleston, SC  |  October 17, 2011
I owned a 1997 Mazda Protege, it was repossessed in 2000. I have just received a notice from the city of Hartford saying that I need 2 pay car taxes. I no longer have info on that vehicle and it is not on my credit report. Do I have 2 still pay the taxes and how do I get proof that the vehicle was repoed?
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Bills.com
October 18, 2011
It is not clear for which years Hartford is asking you to pay. The further back it goes, the harder it is for you to provide proof you did not own the car. Perhaps your state's Dept. of Motor Vehicles can provide proof that the car stopped being registered in your name. Another route would be to contact your old insurance company. If they have records of when your coverage stopped, that information may help you prove your case.
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Nigel S.
Washington, DC  |  October 17, 2011
A good friend of mine had a repossession back in 2009. Here it is 2011 and he's getting letters from the collection agency. He's constantly asking (and concerning) with his wages getting garnished--even though its been two (almost three) years since the repo. So my question is, how long does it takes for the wages to get garnish and is this something court ordered/judge ruled? Also, how long does a repossession last on the average credit record?
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Bills.com
October 17, 2011
Wage garnishment is the result of a process that varies in the length of time required. Ask your friend to read the Bills.com resource Collections Advice to learn more about the process of collecting a debt, and when a creditor may initiate wage garnishment.

Repossession appears on a credit record for 7 years.
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AJS S.
Sugar Creek, MO  |  October 17, 2011
We purchased a truck almost 5 years ago, we have been making payments every month ( except when granted a deference ) to this day we still owe almost as much as when we agreed to puchase it, is there some law that states they can only take so much...by the time this is paid off it will be a $60,000 truck...it was only worth $10,000 when we bought it? I am tempted to let them come get it and just get me something else.
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Bills.com
October 17, 2011
Without looking at your account history it is impossible for me to say whether your lender is treating you fairly and according to the contract you signed. Take your contract and your statements to a CPA and ask for a forensic accounting. Ask if you are being charged more than your states usury limit.
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Kari M.
Riverside, CA  |  October 15, 2011
If i have a car i just got about five months ago which i have my dad co sign for it, and the payment is more than five hundred., i decided to get another car with less monthly payment, if the first car gets repoed can they also repoed the new one even though i am paying it with no problems? Oh and on the new car it's just me in the car unlike the first one where my father is above me in the registration.
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Bills.com
October 16, 2011
You probably owe more on the new car than it is worth. If that is the case, then a creditor can't come after it.

The problems that will arise, however, will be serious for both you and your father. If the car is repossessed it will harm both your credit ratings and each of you will face collection efforts that could lead to wage and bank levies.
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Kelly S.
Vista, CA  |  October 13, 2011
I had purchased a car in my name as well as my mothers since she was a co-signer. Two years later I could not pay the high car payment. I decided to do a voluntary repo. After a few weeks the car company finally took it from my home. It has been a year or so since. My mother also filed and was discharged from a bankruptcy case about 7 months ago. I was also planning on filing for the same so to my knowledge she did not include this in her case so that I could include it in mine. So for her being discharged 7 months ago and the actuall repo over a year ago, shouldnt I have seen or rcvd something from the loan company. If the car loan is not an issue I will not file. How can I find out if they are coming for me or not??? I also have checked my credit and there is nothing there. And on my mothers her laon says closed.
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Bills.com
October 14, 2011
Consult with a bankruptcy lawyer about your situation. I do not understand how your mother could file for chapter 7 and not include her liability for the vehicle loan you mentioned. In chapter 7, debtors must list each and every asset and liability — picking and choosing liabilities is not allowed.

Ask your mother to consult with her bankruptcy lawyer to learn if the vehicle loan liability was discharged.
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