Voluntary Auto Repossession

A motor vehicle can serve many functions. It is indispensable in taking you to and from your workplace. As a vehicle owner, you depend on it to take you to your planned destinations at any time (given the mileage) whenever you need it to. But according to the Federal Trade Commission, if you are late in your car payments, there is a chance your car could be taken away from you. This can be done through an extrajudicial process by your creditor known as repossession. Repossession can wreak havoc on your credit report. Here are some insights on how you can avoid its pitfalls.

 

 

Voluntary and Forced Repossession and Your Credit

A car repossession takes place when you are deficient in making payments on your car loan. Repossession can either be voluntary or forced. Voluntary repossession happens when you take the initiative to return the car to the lender for failure to pay the periodic dues on the car.  This may save you from extra charges like storing or repossession, but it does not exempt your credit rating from being readjusted. One credit repair company even said that there might be no substantial change as far as charges are concerned. Voluntary repossession can still be reflected on your credit report for a maximum of seven years and you may still owe the creditor money even after you have returned the car. This will leave a negative impact on your credit report and will cause difficulty in your future credit applications. An involuntary repossession, on the other hand, takes place after a notice of default in payments has occurred. The lender himself will hire a repossessor to retrieve the car on his behalf. This process will leave a grave mark on your credit report and charges and fees will be added to your deficiency. Involuntary repossession can get you into deeper financial trouble.

Advantage of Voluntary Repossession vs. Bankruptcy

In voluntary repossession, the negative impact on your credit report can last for a maximum of seven years. Voluntary repossession can be advantageous for you, if you are choosing between this and filing for Chapter 13 bankruptcy. As far as your credit report is concerned, voluntary repossession is more beneficial since it will affect you for a shorter period of time then Chapter 13 bankruptcy, which will reflect on your credit report for a maximum of ten years. If you are opting for Chapter 7 bankruptcy, the duration is the same as voluntary repossession.

Disadvantages of Voluntary Repossession vs. Bankruptcy

If you are defaulting on your car loan payments, try to avoid getting your car repossessed whenever you can. The disadvantage of voluntary repossession, aside from parting with your vehicle, is that you are left with the deficiency amount owed to your lender. Even after you have voluntarily surrendered your car, you are still left with the amount of debt that your creditor has the right to collect from you. If there is any deficiency even after resale of the car, you are still bound by your contract to cover for such deficiency. Your creditor can also report these deficiencies and it will negatively affect your credit rating. Bankruptcy, on the other hand, is advisable of you surrender your car and have your deficiency discharged, along with other unsecured debts you may have left. By filing for bankruptcy you will be able to dispose your outstanding debts although it will leave a colossal negative mark on your credit rating which will make future credit accommodations difficult for you.

Effects of Voluntary Repossession in Future Car Purchases

You can still repair your credit score by securing a copy of your credit report from any of the three credit reporting agencies and then review all the entries to make sure they are accurate. If you find any erroneous information, you can dispute that either by sending these bureaus a letter or filling out a dispute form. Once proven in your favor, they will be erased from your record. Next, contact your lender and try to settle your deficiency from repossession and try to offer a repayment plan which you should be faithful to comply with. When your deficiency balance from repossession has been paid, credit reporting bureaus will update this in your report. Consulting a credit counselor will also help you repair your credit rating. You can also open a secured credit card so you can increase your chances of rebuilding your credit score. You can do this by opening a savings account with any financial establishment that offers secured credit card products. When your credit rating has improved, you can now purchase a new car. But be sure that you can handle the payment dues this time around.