What is a Voluntary Repossession?
If you are facing financial stress and can no longer afford your car payments, it may be time to consider your options. One of those options is to repossess your car voluntarily. Rather than fail to make the payments and have the bank force repossession, you can choose to initiate the process yourself.
How Long Will a Voluntary Repossession Affect My Credit
Generally speaking, a voluntary repossession can affect your credit for seven years. Seven years is a long time, depending on your circumstances, and something to consider before voluntary repossession.
If your financial stress may be for a few months and relief is coming, for example, out of work for a couple of months due to health issues or other, you may wish to reach out to your lender and see if other options are available. Whenever possible, try to be proactive and reach out to your lender before you are late on a payment so you are in good standing during the conversation.
In some cases, lenders will allow you to sell the vehicle back to them to avoid the repossession process. Check with your lender to see if this is an option and what that may look like for you to avoid having a mark on your credit for seven years.
For some, seven years isn’t long and is a viable option. If you don’t have any large purchases or changes in life on the horizon, such as purchasing a home, you may choose to initiate the process and rebuild your credit during the seven years it’s on your history.
Another Disadvantage of Voluntary Repossession
Another disadvantage commonly overlooked is that you may still owe on it if you choose to repossess your vehicle voluntarily. For example, if the bank sells your vehicle and they can’t get for it what the balance of the loan is, they can pursue you for the difference. Suppose you bring the car back to the bank, and they sell it for $10,000, but you owe $12,000 on the loan; they may pursue you for the $2,000 difference.
For this reason, it’s essential to understand the car’s value in relation to what you owe to it to avoid having to pay more for it once you have handed it over.
Advantages of Voluntary Repossession
One advantage to voluntary repossession is that it allows you more control over the process rather than waiting for the bank to repossess your vehicle.
Similarly, when you bring your vehicle back to the bank for them to sell, typically, the words “voluntary surrender” will appear on your credit report instead of a repossession, which can have a slightly less harsh impact on your credit.
Also, you can avoid the stress of the repossession process. If you fail to make payments, the lender can initiate the process, and you won’t know when this might occur. You could be left somewhere without your vehicle or embarrassed that it was taken from you.
Is Bankruptcy an Option?
If you have significant financial stress, you may consider filing for bankruptcy. Two of the most common options for bankruptcy are Chapter 7 or Chapter 11 Bankruptcy. Either would allow you some reprieve until you can get back on your feet. A bankruptcy will affect your credit similarly to the length of time that a voluntary repossession will appear. Chapter 7 or 11 bankruptcies can linger on your credit report for up to ten years but may not appear for that long.
Chapter 7 bankruptcy involves liquidating or eliminating debt by forfeiting some of your assets to cover debt owed. It has benefits, such as the forgiveness of some debt, that make this option appealing. It doesn’t, however, forgive some debt, such as child support or most college loans, making it less appealing for some.
Chapter 11 bankruptcy allows for a reconfiguration of your debt. You would work together with your attorney to determine an affordable payment and request that you restructure your debt for a set number of years with consistent payment. This option is appealing to some who have found themselves in a challenging situation but are now back on their feet and able to afford a regular payment.
Both processes allow immediate automatic stay on your assets, including your vehicle. An automatic stay means your assets are protected from repossession, foreclosure, and more while you finalize the bankruptcy. There may be other options that will also be best for you in your specific situation.
Discuss these options and more with your experienced attorney to determine which may be best.
Your Lifeline During Financial Stress
Financial stress is never fun, and we respect that this issue may be challenging for you. You are not alone; by researching your options, you are taking control and attempting to correct the problems.
Our team has a specific background in bankruptcy, making them more than capable of assisting you during this challenging time. We can sit down with you to discuss your situation, determine which option may be best for you, and pursue it alongside you.
There may be options you are unaware of that can be less impactful on your credit. With a vast knowledge of bankruptcy laws, we can confidently discuss all the tools available to you and determine which route is best.
Call our office today at (317) 623-4546 for a no-obligation consultation. We help provide you with a practical approach to a stressful occurrence in your life and a clear path to the next chapter.