Are there advantages to a voluntary takeover? (2024)

Voluntary repossession involves returning your car to the car dealer instead of waiting for the lender or collection agency to seize the car. It may be a good option if you are having trouble making monthly car payments, if you can only make late payments, or if you are going through bankruptcy. Whether this is the right step depends on your personal situation and goals. This article explains voluntary repossession, how it can affect your credit history, and how bankruptcy may or may not help with repossession problems.

What happens after my car is repossessed?

After your car istaken overthe lender will probably decide to sell the car at auction. Most repo auctions sell the car for less than what you still owe on it. This is a problem because you are responsible for any remaining cash balance that the car sale does not generate. That includes the unpaid balance of the loan, any remaining interest, and the money the lender spent towing, storing and selling the car.

If the car auction price is not enough to cover these costs, the lender can sue you for the money you still owe, called the deficiency balance, and receive compensation.domfor the defect. If you do not pay the defect judgment, yourwages can be seizedby a collection agency. You should seek legal advice if your wages are being garnished.

Missed car loan payments and vehicle repossessions affect yourcreditworthiness. Late or missed payments will appear on your credit report and negatively affect your credit score. The repossession itself is reported separately and also hurts your credit score. These things on your credit report look very bad to prospective lenders for several reasons.

First, having a history of late or missed payments tells lenders that you may not be good at paying back money. When lenders see evidence of repossession, they know that you could be sued for the deficiency and have your wages garnished, which could make it harder for you to make payments on new loans. For these reasons, they will be reluctant to give you a loan if your car has been seized or you have a judgment against you. And if lenders approve you for a loan, they will likely charge higher interest rates.

Why voluntarily have your car confiscated?

Sometimes voluntary impounding can be better than waiting for the confiscators to seize your car themselves. If you do not return the car voluntarily, the repo teams will confiscate the car without notice. They often confiscate your car in the middle of the night because that is the easiest time for them to find it. They also prefer to drive at night as people are less likely to be awake and get in the way of the seizure.

In addition to giving you control over the timing, voluntary seizures can also help you avoid unwanted attention. No one wants to be humiliated by having their car impounded in front of other people. If the repo team shows up unannounced, your neighbors may notice that your car is being towed away. You can avoid this embarrassing experience by voluntarily returning your car.

There are also some financial reasons to consider voluntary readmission. Doing this can reduce the amount you owe the lender. If you voluntarily return your car, the lender will not charge you any repossession costs. Generally, this means that the deficiency judgment against you will be lower if you voluntarily surrender the car.

Another reason to choose a voluntary repossession is that it can look better on your credit report. But this is not guaranteed. Both the lender and the credit bureaus can decide whether or not to report the repossession. If you are considering voluntary repossession, you should first contact your lender to see if they will agree not to report the repossession if you do so voluntarily. Unfortunately, even if the lender agrees not to report the repossession or your missed payments, credit bureaus may still require this information from the lender. If that happens, the repossession will still hurt your credit score.

Credit repair is a good option for people with a bad credit history. If your credit score isn't as high as you'd like, you can do some researchcredit repairpossibilities.

Call your lender to ask how they handle voluntary repos

For many people, car payments end up being too expensive. There ismore optionsto lower your car payment if it is too high. If you are having trouble making payments and you are considering voluntary repossession, your first step should be to call the lender, dealer or financial institution that services your loan. Explain your concerns about making payments and explore all available options.

Sometimes lenders will accept a more affordable payment plan to avoid repossession. You can also discuss how they handle voluntary repossessions and credit reporting. Knowing how your lender handles voluntary repossessions can help you decide whether it's worth it.

It's also a good idea to call other auto lenders to see if you can get a better payment plan by refinancing the loan. Refinancing loans is a serious decision, so you should inform yourself well and read all refinancing agreements carefully.

Bankruptcy can help you with voluntary repossession

You may also consider bankruptcy if you are concerned about your car payments. Bankruptcywipes out certain debt obligationsand can help you with your car payment situation. The two sections below explain how two different types of bankruptcies can affect your car loan debt.

How a Chapter 7 Bankruptcy Can Help With a Voluntary Seizure

In Chapter 7 bankruptcy, giving back your car is called a voluntary surrender. When you are in Chapter 7 bankruptcy, you can surrender your car and the car loan is eliminated. After the voluntary redemption, all the money you still owe on the loan becomes oneunsecured debts. Unsecured debt is a form of debt that is not tied to or secured by a physical asset. This means that a lender cannot seize your property if you fall behind on your loan payments.

A common example of unsecured debt is credit card debt. If you don't pay your credit card bills, the credit card company can sue you and seek a judgment against you, but they can't simply seize your property. So a borrower who files for bankruptcy and voluntarily surrenders his car should have had his unsecured car loan wiped out.

If you return the car while you are in Chapter 7, you will not owe the lender on the car loan and the lender cannot sue you for a deficiency.Application for bankruptcyis a serious decision, so you should consider its pros and cons before making it.

How a Chapter 13 Bankruptcy Can Help With a Voluntary Seizure

Regarding the seizure of cars,Chapter 13 bankruptcyhas some important onespros and conscompared to Chapter 7. A major disadvantage is that turning in your car does not automatically wipe out the money you owe. In fact, when you file under Chapter 13, you pay only a small portion of the amount you owe the lender. The car loan debt is not paid off until you complete the 3 to 5 year repayment plan.

One benefit of Chapter 13 is that you may be able to keep your car. You may also be able to make your payment plan more affordable by getting a lower interest rate or spreading out the payments to lower it.

Another benefit of Chapter 13 is something called acramps. With a cramdown, you only pay the actual value of the car and not the entire loan. Paying only the actual car value is cheaper because you do not have to pay interest or costs on the loan. After successful payment of the cramdown payment plan, you will acquire full ownership of the car. But a cutback does not only remove the loan debt. Instead, the loan becomes an unsecured debt that is only released once you complete the repayment plan.

Chapter 13 can be quite complex, so it's a good idea to do itconsult with a lawyerbefore submission.

Let's summarize…

Voluntary repossession can help you if you can't keep up with car payments and your car lender won't agree to report the repo. Unfortunately, you can't count on the auto lender's promise because credit bureaus may still require them to report information. In some cases, bankruptcy may be the best option for dealing with both voluntary and involuntary repossessions. This will all depend on your individual circ*mstances; you need to take the time to understand all your options.