When you are behind on car payments in California and feel repossession is unavoidable, you can choose to voluntarily turn in your vehicle. A voluntary repossession can save you on fees and some embarrassment, but it probably won’t wipe away the money you owe the lender or keep your credit score from taking a hit.
What’s more, that source of transportation may provide you with the only chance you have to earn money to make those loan payments. If you are in this tough situation, considering something called a voluntary repossession may be an option.
What is Voluntary Repossession?
The threat of losing your vehicle to repossession will make for a stressful and frustrating experience. You might be far behind on car payments and worry your car may get taken by your lender right off the street.
A voluntary repossession, also known as voluntary surrender, allows you to contact the lender and set up a time and place to turn over your car and keys. Taking this action can offer several benefits:
- You save on the repossession fees most car dealers and lenders will charge you if they must send someone to claim your vehicle.
- Turning in your car willingly could save you from a confrontation with a tow-truck repossession crew. They can appear at any time, even in front of your home, and begin loading up your car. You can save yourself some embarrassment by turning it in early.
- By contacting the lender before repossession, you may be able to work out new loan terms and keep the vehicle.
Does Voluntary Repossession Relieve Loan Debt?
Unfortunately, a voluntary surrender usually doesn’t help with the debt you owe. No matter how they obtain the car, lenders will attempt to sell or auction off the vehicle. This can erase some of what you owe, but if you are upside down on the car loan, you are still responsible for the difference.
Being upside down on the loan means the debt remaining on a car loan is more than the car is worth. This is often the case when it comes to automobiles because of their fast depreciation rates. So selling or auctioning off a car may not bring enough profit to cover the loan.
Voluntary Repossession and Car Loan Deficiencies
The debt that isn’t covered by the sale of your car is still owed, plus any fees the bank tacks on. If you can’t supply the remaining cost, the debt may get sent to a collection agency. The bank could also choose to take you to court.
When you end up facing a car loan deficiency and you have other financial problems, it might be a good time to consider bankruptcy. Bankruptcy might be able to wipe away some or all of this debt and help you sort out your other money issues. You should contact a California bankruptcy attorney to find out about your options.
Voluntary Repossession And Credit Scores
Voluntary repossession doesn’t offer much protection for your credit score. Each time you’ve missed a payment on your car, your credit score has been dinged. At the very least, those negative marks will stop with repossession.
Your repossession will show up on your credit report. Most credit reporting agencies don’t differentiate whether you turn in your car willingly or if the bank was forced to repossess it.
Once your car sells and you end up liable for the car loan deficiency remaining, your credit absorbs another hit. This is discouraging, but it’s important to remember that staying current on your other bills can reduce the damage your credit score receives.
Your new credit score will also make it harder to buy another car. You’re considered a loan risk and may be forced to accept a loan with much higher interest rates simply to secure transportation.
Options Beyond Repossession
The best outcome is to avoid repossession if at all possible. There are a few things you can try when you fear repossession is on the horizon.
Here are a few options:
- Talk to your lender. Lenders are sometimes willing to compromise if it means they don’t have to go through the expensive and hassle of a repossession.
- You could pay off the car loan by taking out another loan with better interest rates and smaller monthly payments. The time between loans may give you a few weeks to save up some money.
- Sell Your Vehicle. If your loan is less than the value of the car, you can sell the vehicle yourself and pay off what you owe in one lump sum.
- Consider bankruptcy. A bankruptcy may delay repossession and could wipe away some of that debt in a discharge. Talk to a bankruptcy expert to find out if this is the right option for you.
Contact a Bankruptcy Lawyer Serving Southern California
When you fear your car may get hauled away at any moment, it can be hard to relax. If your car payment issues are just the tip of the iceberg on your financial troubles, filing for bankruptcy could be an option to consider. There’s nothing to lose by going over your current situation with a bankruptcy attorney to determine the best path for you.
Contact the Law Offices of Steers and Associates in Los Angeles today. We offer a free bankruptcy consultation and we are happy to listen as you tell us about what you’re going through. We want to help determine your best path to financial freedom.
For more information on how car repossessions work in California and how you may be able to get your repossessed car back, check out our informational page.
Elena Steers is a highly experienced bankruptcy attorney, the founder of Law Offices of Steers & Associates, and previously worked as a Bankruptcy Trustee Assistant at the Office of the Chapter 13 Trustee in Los Angeles. Her current affiliations include the State Bar of California, National Association of Consumer Bankruptcy Attorneys, and Central District Consumer Bankruptcy Attorneys Association.