Voluntary Repossession: Pros, Cons, and Better Alternatives
Voluntary repossession helps you avoid surprise repossession and reduces fees, but it still damages your credit score. You may still owe a deficiency balance after the car sells. Alternatives like negotiating with your lender, refinancing, or filing bankruptcy might offer better long-term solutions depending on your financial situation.
Get Free ConsultationVoluntary repossession happens when you return your car to the lender. You do this because you can no longer afford the payments. Sometimes returning your car voluntarily beats waiting for repossession. It may reduce costs and give you more control. However, it still damages your credit score. You might also owe money after the car sells.
What Is Voluntary Repossession?
Voluntary repossession means giving your car back to the dealership. You do this instead of waiting for repossession agents. It can be a decent option if you struggle with monthly payments. You might consider it if you can only make late payments. It’s also worth considering when filing bankruptcy.
Eliminate Your Car Loan Deficiency With Chapter 7
Stop worrying about deficiency balances after repossession. Chapter 7 bankruptcy can discharge your remaining car loan debt and give you a fresh financial start. Find out if you qualify today.
Check If You QualifyDeciding if it’s right depends on your situation and goals. Your credit history will take a hit either way. But you might have more options than you think.
What Happens During a Voluntary Repossession?
Start by contacting your lender if voluntary repossession seems right. Tell them you can no longer make payments. Say you want to surrender the car.
The lender will give you instructions on returning the vehicle. They may ask you to deliver it to a dealership. Confirm what they need beyond just the car. They usually want the car keys and vehicle title. They’ll also want any accessories or manuals that came with it.
Remove all personal items from the vehicle before returning it.
Your lender may ask you to sign a surrender agreement. This document outlines the repossession details and confirms the return. Ask your lender how they’ll report the repossession on your credit. See if they’re willing to waive any fees. You might also negotiate to reduce the remaining loan balance.
What Happens After the Repossession?
Most lenders sell the car at a public auction after repossession. The auction price is usually less than your remaining loan balance.
You’re responsible for the difference, called a deficiency balance. This amount includes any unpaid loan balance and leftover interest. It also includes money the lender spent on towing and storage. Selling costs get added too.
The lender can sue you for the deficiency balance. If they win, the court will issue a judgment in their favor. Our partner Solo can help you respond to a debt lawsuit and potentially negotiate a settlement. Judgments allow lenders to pursue wage garnishment or freeze your bank account.
How Does a Repo Affect Your Credit?
Missed car loan payments hurt your credit score significantly. Vehicle repossession damages it even more. Late or missed payments show up on your credit report immediately.
The repossession itself gets reported separately and tanks your score. These marks on your credit report scare future lenders. They tell lenders you might not pay money back. A repossession record shows you can be sued for deficiency. Wage garnishment becomes possible, making new loan payments harder.
Lenders may hesitate to approve you after a recent car repossession. If they do approve you, expect higher interest rates. Our partner Kikoff can help you rebuild your credit score after financial setbacks.
Should You Volunteer to Have Your Car Repossessed?
Sometimes voluntary repossession beats waiting for repossession agents. You may experience two kinds of benefits: financial and emotional.
Financial Benefits of Voluntary Repossession
Voluntary repossession can reduce your overall financial burden. One major benefit is avoiding repossession costs like towing fees. Storage fees also add up quickly. These costs typically get added to your loan balance during involuntary repossession. You’ll owe even more money as a result.
Surrendering the car voluntarily may leave you owing less overall. The deficiency balance becomes smaller and more manageable.
Another benefit is the chance to negotiate with your lender. Some lenders agree to waive certain fees when you’re proactive. They might reduce the remaining balance during the surrender process. There’s no guarantee, but it can lead to better outcomes.
Emotional Benefits of Voluntary Repossession
The emotional relief of voluntary repossession matters to many people.
If you wait for lender repossession, they’ll send a team unexpectedly. They can take your car without notice at inconvenient times. The team might come in the middle of the night.
Surprise repossessions cause significant stress and embarrassment. Neighbors, coworkers, or family members might witness it. Voluntary repossession lets you control the timing. You can remove personal items and avoid public humiliation.
Surrendering the car yourself gives you more control over everything. You won’t wait anxiously for the repo team to appear. You can plan and prepare for the surrender. Added control brings peace of mind and decreases financial stress.
What Are the Alternatives to Voluntary Repossession?
Voluntary repossession isn’t your only option when struggling with payments. Consider these alternatives before giving up your vehicle:
- Negotiate with your lender
- Refinance your auto loan
- Sell the car yourself
- Explore your bankruptcy options
Negotiate With Your Lender
Many lenders work with borrowers to avoid repossession altogether. You can ask for a payment extension or temporary reduction. Loan modifications are also possible in some cases. Open communication with your lender sometimes results in more affordable terms. You might keep your car this way.
Refinance Your Auto Loan
Refinancing might work if you qualify for a lower interest rate. A longer repayment term could also help. Either option could lower your monthly payment significantly.
Refinancing works best when you’re current on payments. You might qualify if you’re only slightly behind. Missed several payments already? Creditors become less likely to approve refinancing.
Read the new loan agreement carefully if you refinance. Refinancing can increase the overall cost of the loan long-term. Extending the loan length usually means paying more interest.
Sell the Car Yourself
Selling the car yourself works if you owe less than it’s worth. You can pay off the loan in full this way. Even if the car’s value is less than the balance, you’ll get more than auction prices. Lenders get terrible prices at auctions. Selling yourself reduces the deficiency balance you’ll owe.
Explore Bankruptcy Options
Bankruptcy provides relief when you’re dealing with multiple debts. Chapter 7 bankruptcy may let you surrender the car completely. The remaining loan balance gets wiped out entirely.
Chapter 13 bankruptcy helps you catch up on payments instead. You can restructure the loan to make it more affordable. Speak with a bankruptcy attorney for free to understand which option fits your situation. Filing for bankruptcy is a serious decision with lasting consequences.
Benefits of Surrendering a Car in Chapter 7 Bankruptcy
Surrendering your car means giving it back to the lender. You won’t owe anything for the car loan after that. You also won’t owe any deficiency balance from repossession.
When you surrender the car, the remaining balance becomes unsecured debt. It’s no longer tied to the car itself. The lender can’t take any other property to collect it. Unsecured debts like credit card debt get wiped out in Chapter 7. The remaining loan balance should be discharged during bankruptcy.
If you decide to surrender your car, the process involves:
- Notifying the bankruptcy court and your lender on your Statement of Intention
- Waiting for the court to give the lender permission
- Making the car available for pickup or dropping it off
Most lenders pick up the car within a few weeks. Some may wait until after your bankruptcy case closes. Once the automatic stay no longer applies, the lender decides when to repossess.
What if the Creditor Doesn’t Come Pick Up the Car?
Once the court gives permission, your lender decides when to act. Sometimes months go by and nothing happens. In some cases, lenders decide repossession isn’t worth the cost. Repossessing, repairing, and reselling a vehicle costs money. If the lender thinks it won’t be profitable, they leave it.
Even if they don’t take the car, the lender still owns it. The title will still have a lien attached. You won’t be able to sell it legally. You could end up stuck with a car you don’t want. You’re stuck until the lender picks it up or you pay off the remaining loan.
How Chapter 13 Bankruptcy Can Help With Voluntary Repossession
If you file for Chapter 13 bankruptcy, you can still surrender your car. The process is different from Chapter 7 though.
In Chapter 13, surrendering doesn’t immediately eliminate the loan balance. The deficiency balance is treated as unsecured debt instead. It gets included in your repayment plan.
You’ll pay a portion of that balance over 3 to 5 years. You’ll pay other debts during this period too. Any remaining balance is discharged once you complete the plan successfully.
Chapter 13 also gives you the option to keep your car. You might catch up on missed payments through your repayment plan. You may be able to negotiate a lower interest rate. You might even reduce what you owe on the car.