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All About Voluntary Repossession

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?

What is the meaning of a voluntary repossession? Also, which affects your credit report more; a voluntary repo or a regular repo?  And, is voluntary repossession only for autos or are there home voluntary repossessions too?

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Repossession
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.

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 a deficiency balance 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. Under the FCRA, a repossession will appear on a credit report for 7 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. 

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

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  • 35x35
    Oct, 2019
    Malina

    Hello my question is regarding voluntary repossession. At what point do I drop the car from the insurance and do I need to return my plates and cancel registration?

    0 Votes

    • 35x35
      Oct, 2019
      Daniel

      I believe that as soon as you drop off the car and no longer will be driving it, you can cancel the insurance.

       

      Contact the DMV in your state for instructions regarding the plates.

      0 Votes

  • 35x35
    Aug, 2019

    I'm asking in behalf of my grandpa. who is 70+ y/o and retired . He is now staying in the Philippines for awhile. The situation is that he bought a Mazda 2011 for 12k with an interest rate of 9.49% and has been paying for 4 yrs. His loan balance is still around 7k. also, the auto transmission has broke down (the mileage is below 100k miles still) and the cost of repair is not cheap (around 3-4k; he already cancelled the extended warranty). What would you recommend him to do? What is the best way to handle this? Is itvoluntary repossession? What solution would have the lowest costs? Does it make sense to keep and fix the car? He's not worried about his credit. It's just that what would be smart thing to do here financially speaking? Please help. Thank you

    0 Votes

    • 35x35
      Aug, 2019
      Daniel

      There are negative consequences to voluntary repossession other than the damage to your grandfather's credit. He would be responsible for the debt and could be sued to collect what he owes. Depending on his income, assets, and holdings in bank accounts, the creditor could come after any of those if they sued him and got a judgment. The risk of collection for the debt could still exist if he is the Philippines, though it is also possible that the creditor will not pursue the debt as it is more of a pain to pursue international collections. When he plans on returning to the US, if he plans on doing so, is also a factor to consider in order to find the best solution.

      Here are some questions to answer, before you can figure out which route is cheaper.

      1. If he rebuit the transmission what could he sell the vehicle for?
      2. If he sells it as is what would he get?
      3. Can he afford to continue making the payments?
      4. Is his current credit score good enough to refinance the car loan to a lower rate?
      0 Votes

  • CH
    Nov, 2018
    Chris

    I did a voluntary repo in a chapter 7/13 bankruptcy. That was about 4-5 years ago and they still have not come to get the utility trailer. Can I sell it?

    0 Votes

    • 35x35
      Nov, 2018
      Daniel

      To get legal advice, consult an attorney. I will share my thoughts, with the understanding that it isn't legal advice. 

       

      To sell a trailer, you need to have title to it. If you don't, then you can't transfer ownership to the buyer and the buyer could not register the trailer. 

      I recommend contacting the lender again. Ask the lender to pick up the trailer or to put in writing that they are not going to do so. When you call them, ask to whom you can send a letter about the subject and follow up with a letter that states that they need to pick up the trailer with a set time frame (45 days for example). Send the letter in a way that you can prove it was received and save a copy of of the letter and the delivery confirmation. If you get no answer, apply for an abandoned vehicle title, bringing proof of the history of the voluntary repo and your attempts to address the matter.

      Please report back here on how things go, so other readers can learn from your experience.

      1 Votes

  • LL
    Apr, 2017
    Lori
    I am disabled and am going to have to voluntarily repo my car.. I am trying to find out tho, if they can still come after me for the remaining balance in the state of Indiana?? Any help?? Thank you!!
    0 Votes

    • 35x35
      Apr, 2017
      Daniel

      Yes, you can face collections for the deficiency balance. Your income and assets are protected according to the collection law exemptions for Indiana.

      0 Votes

    • 35x35
      Apr, 2017
      Daniel

      Please allow me to add that your disability income may be exempt from collection by this type of creditor.

      0 Votes

  • KJ
    Mar, 2017
    kevin
    I can no longer afford insurance on my car so I have no choice but to voluntarily surrender my car. I am still able to make the payments can I be sued
    0 Votes

    • 35x35
      Apr, 2017
      Daniel

      If you turn in a car, then it will be auctioned off and the proceeds applied to your balance, less some fees for the auction process. The remaining debt, called the deficiency balance is your responsibility. If the creditor can't collect it from you, the creditor could sue you.

      What about re-registering the car as non-operative, eliminating the need for insurance? Make the payments until you can afford to resume the insurance payments.

      0 Votes

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