When consumers are delinquent with loan payments, especially for automobiles, they are subject to repossession. The damages from repossession extend well beyond just losing your car.
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What to know about repossession
Most consumers know that repossession means losing the collateral you put up to secure a loan, things like a car, home, land, or personal property.
What you might not know is the problems don’t stop there. Repossession leaves a negative mark on your credit history and damage your credit score. a one-two punch that can cripple your finances and limit your ability to get affordable financing in the future.
Repossessions stay on your credit report for seven years. Initially, they can have a big effect on your credit score, but the damage lessens over time and is wiped out completely seven years after you first are delinquent with a payment.
There also is a chance your account will be turned over to a debt collection agency; you will be sued in court and you could have your wages garnished. In other words, there are grave consequences for failure to pay.
What is Repossession?
The simple definition of repossession is reclaiming ownership of something that has not been paid off, but still has value.
In most cases, cars are the primary asset involved in a repossession, but it could be real estate, jewelry, artwork or any tangible asset that can be sold to recoup money for the unpaid loan balance.
A home foreclosure is one type of repossession. However, the term is most commonly associated with auto loans. The lender is listed as the lienholder on the car title and can reclaim the vehicle if you fail to make an on-time payment.
How Repossession Works
Technically, as soon as a credit account is delinquent, the lender can take action to repossess the property tied to the loan. In the case of a car loan, if you miss a payment, the bank could repossess the vehicle without notice. They can go on to your property to reclaim it as long as they don’t “breach the peace,” meaning use threats of force.
Typically, the lender contracts with a third-party company to retrieve the property, such as a towing service that specializes in auto repossessions. Lenders do not need a court order to start the repossession process. They can shift into gear as soon as you miss a payment. They don’t want to – repossessing a car typically nets the lender only 30% of the loan value – but if you are late or missing payments, this is their best recourse.
Once the property is seized, it is difficult, if not impossible, for the borrower to reverse the situation. The lender charges off the account and may go to court to pursue the borrower for any leftover amounts due, also called the “deficiency.”
Keeping Your Property
It is in the best interests of all parties for a borrower to take immediate action to cure a loan default before repossession occurs.
The primary way to avoid repossession is to contact the lender before you miss a payment and ask them to negotiate a settlement that makes the account current. Talk to a representative from the bank or credit union where you received the loan. Offer them a reasonable proposal that tells them when you will make the next payment and when you expect to be completely back on track.
In most cases the lender would rather come to a payment arrangement than take back the property, which probably will be worth much less than the loan balance and require additional expenses before the creditor can sell it profitably on the open market.
Another way to avoid repossession would be to find a debt consolidation loan at a lower interest rate that what you currently pay on the car loan; ask a family member or friend to give you a personal loan or co-sign a loan for you.
If your financial situation has become drastic, you could save your car from repossession by filing for Chapter 13 bankruptcy and making the car part of the repayment plan you present the court. If you file for Chapter 7 bankruptcy, the creditor is prevented from repossessing the car, but could go to court and receive an order that permits repossession.
Repo Laws and Regulations
Laws and regulations on repossessions vary from state-to-state and sometimes from locality-to-locality so it is best to consult with an attorney in your area if you are involved in repossession.
For instance, a repo company usually cannot trespass on private property to retrieve a car, but in most cases, they may have limited privileges to take a car from a driveway. What they can’t do is enter your garage to repossess the car.
In some cases the borrower can save his or her car from being taken by calling the police promptly. Again, laws vary by state and locality, but the police are responsible for keeping the peace and may have grounds to intervene if repo teams break the law. Generally, local authorities cannot help the repo team — the situation is a private matter involving a lender and borrower and must be resolved in a court of law.
Buying Back the Car
If your car has been repossessed, there is a chance, in some states, that you could get it back if you “reinstate” your loan, meaning pay the past-due amount on your loan, plus whatever your lender’s repossession expenses were.
There also are laws in some states that allow you to buy back the vehicle by paying the full amount owed. That doesn’t mean “catching up” on missed payments. That means paying past-due payments and the entire remaining debt.
There also is the possibility that you could get the car back by making a successful bid at a “repo” car sale.
Can Debt Settlement or Consolidation Help?
If you’re in danger of having your property repossessed, debt settlement or consolidation can help your situation. When you enter into a debt settlement plan, you or a company you hire negotiates with the lender on your behalf to pay off your balance.
The settlement may involve lowering the amount that you owe on the loan. Another option is a consolidation loan, which bundles all of your debt into one loan so that you can make one manageable debt payment each month.
Remember that time is of the essence. You should consider contacting a debt specialist immediately if you’re concerned that repossession may happen or is already in process. Once completed, repossession is a bell that you cannot un-ring. You will lose a valuable possession and it remains a black mark on your credit history for seven years.
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- Lang, S. (2016, March 4) Auto repo: how to avoid a losing situation. Retrieved from http://www.chicagotribune.com/classified/automotive/sc-cons-0226-autocover-repossession-20150220-story.html
- Huffman, M. (2014, April 9) Vehicle Repo: What Are Your Rights? Retrieved from https://www.consumeraffairs.com/news04/2012/09/vehicle-repo-what-are-your-rights.html
- NA, (2008, November) Vehicle Repossession. Retrieved from https://www.consumer.ftc.gov/articles/0144-vehicle-repossession