Updated on January 7, 2024
Voluntary Repossession: Pros and Cons
When dealing with financial difficulties and unmanageable car payments, one of the options you might consider is voluntary repossession. However, it is essential to weigh the pros and cons before making such a decision, and consulting a bankruptcy attorney can ensure you are making the best decision for your situation.
What is voluntary repossession?
Voluntary repossession is a process where a borrower who is unable to continue making loan payments decides to return the asset—usually a vehicle—to the lender. This decision is voluntary, hence the term, and it is typically made to avoid the unpleasant circumstances associated with involuntary repossession.
How does voluntary repossession work?
If you realize that you can no longer afford the payments on your vehicle, you may choose voluntary repossession instead of waiting for the lender to repossess your vehicle.
To initiate a voluntary repossession, it is advisable to contact the lender or creditor to inform them of the situation. Discussing the intention to voluntarily surrender the property demonstrates cooperation and may potentially help mitigate some of the costs associated with repossession.
After informing the lender, you can typically arrange a time and place for the creditor or a repossession company to retrieve the property. When the agreed-upon time arrives, you then give the collateral to the creditor or the repossession company. They take possession of the vehicle, and you sign over the necessary documents acknowledging the voluntary surrender.
After repossession, the creditor typically auctions the item to recover some of the outstanding debt. The amount obtained from the sale is applied toward the loan balance, but you may still be responsible for any remaining deficiency.
Voluntary repossession might seem like a preferable option compared to involuntary repossession, but it is essential to carefully consider the long-term consequences and explore other potential solutions, such as negotiating with the lender or seeking alternative repayment arrangements, before opting for voluntary repossession.
Pros of voluntary repossession
Voluntary repossession is a proactive approach if you find yourself unable to continue with your loan repayments. It is an opportunity to negotiate with your creditor, possibly reaching a settlement that could alleviate some of the financial burden. By choosing voluntary repossession, you may avoid a surprise involuntary repossession, which can happen at inconvenient or even dangerous times.
Additionally, this path allows you to prepare for the return of the car in an orderly manner. You will have time to remove your personal items and understand the process better. For many, there is also an emotional benefit – it's often less distressing to give up an asset willingly rather than have it taken away forcibly.
Moreover, voluntary repossession might help you avoid additional costs associated with involuntary repossession, such as towing and storage fees.
Cons of voluntary repossession
However, voluntary repossession isn't without its downsides.
Doesn’t completely remove your loan
One major drawback is that it doesn't necessarily erase your debt. If the lender sells the car but doesn't make enough to cover the outstanding loan balance, you could still be liable for the difference—known as a deficiency balance.
It could affect your future loans
Voluntary repossession can make obtaining future loans more difficult. There is no difference on your credit between a voluntary repossession and an involuntary one. Future lenders may see this action as a risk factor, making them more reluctant to lend to you or offer you higher interest rates.
Has a negative impact on your credit score
Voluntary repossession can have a significant negative impact on your credit score. This record will stay on your credit report for seven years, potentially making it harder for you to get approved for new credit during this period.
What other options do you have?
While voluntary repossession is an option, it's not your only option. Another alternative is to file for bankruptcy. A Chapter 7 bankruptcy allows you to give up the car and discharge the car loan along with other unsecured debts like credit cards, medical bills, personal loans, judgments, collections, older taxes, and many other debts.
If you wish to keep the car but find the payments unmanageable, filing a Chapter 13 bankruptcy could be a good solution. This option allows you to rewrite the loan terms, potentially reducing the interest rate and extending the payment period. If you've had the car for more than 2.5 years, you might be eligible to cram down the loan to the current value of the car, resulting in substantial savings.
If you are struggling with a car loan and want relief, you should talk to a bankruptcy attorney before taking any action. They can help you explore all your options and choose the best route for the quickest possible financial recovery. It is always better to seek expert advice to make well-informed decisions during these challenging times. You’re not alone!
Finding the best lawyer
Seeking professional advice from an experienced lawyer can help you better understand your options.
To find the best lawyer, you should begin by seeking recommendations from trusted sources, such as friends, family, or colleagues who have previously dealt with similar situations or legal matters. They might refer you to an attorney they found effective.
Additionally, online legal directories can provide a list of attorneys specializing in these types of cases. Alternatively, you can check reviews and testimonials online from previous clients. Online reviews should be considered alongside other factors but they can offer insights into an attorney's professionalism, communication style, and success in handling similar cases.
You can also explore online attorney directories that can provide information about attorneys' backgrounds, experience, client reviews, and ratings, which can help you assess their expertise. You can also contact the State Bar Association, which can provide referral services or directories of attorneys specializing in various practice areas.
Ultimately, you should look for attorneys with specific experience in bankruptcy and/or repossessions. Review their websites, profiles, or biographies to understand their track record, years of experience, and successful outcomes in handling repossession cases.
Once you have narrowed down your list of potential attorneys, you can schedule consultations. During these meetings, discuss your case, and ask relevant questions about their experience, approach, fees, and how they plan to handle your situation. During the consultation assess your comfort level and choose an attorney with whom you feel comfortable discussing your case and who communicates effectively and transparently.
It’s also important to understand the attorney's fee structure upfront. Some may charge hourly rates, while others may work on a contingency basis or offer flat fees. You should clarify all fees and payment terms before hiring an attorney.
By conducting thorough research, evaluating experience, checking references, and meeting potential attorneys, you can find a repossession attorney who is best suited to handle your legal needs effectively.