Do you know what repossession means? It’s a legal process in which a creditor takes back possession of collateral (usually a vehicle or a home) when a borrower defaults on a loan or lease agreement. Repossession can happen for various reasons, such as nonpayment, late payments, insolvency, or breach of contract. If you’re struggling to make payments on your car, house, or other property, and you’re worried about losing it to repossession, you may wonder what options you have. One option is voluntary repossession, which means that you agree to surrender the collateral to the creditor instead of waiting for them to repossess it forcefully. Is voluntary repossession a good idea? Well, that depends on your situation and your goals. Let’s explore the pros and cons of voluntary repossession and see if it’s the right choice for you.
[Related: buy tradelines from us or read the “Resources” section below]
Pros and Cons of Voluntary Repossession
When you’re facing repossession, you may feel overwhelmed and confused. You may also feel ashamed, angry, or resentful. Don’t beat yourself up. Repossession happens to many people, for reasons beyond their control or their fault. Maybe you lost your job, got sick, went through a divorce, or faced unexpected expenses. Whatever the cause, repossession is not the end of the world, nor is it a moral judgment of your character. It’s a financial and legal process, governed by specific rules and procedures. You have rights and obligations, and so does the creditor. Knowing your options can help you make an informed decision and minimize the damage to your credit score and your finances.
Options when facing repossession
So, what are your options when facing repossession? Here are some common ones:
- Negotiate with the creditor: You may be able to work out a repayment plan, a loan modification, or a forbearance agreement with the creditor, which could allow you to keep the collateral and avoid repossession. However, this option requires cooperation and communication between you and the creditor, and it may not always be feasible or favorable.
- Refinance or sell the collateral: You may be able to refinance the loan or sell the collateral to another buyer, and use the proceeds to pay off the debt or reduce the amount owed. However, this option depends on your equity, your creditworthiness, and the market conditions, and it may not always be timely or profitable.
- File for bankruptcy: You may be able to discharge the debt or restructure the payments through bankruptcy, which could offer you some relief and protection from repossession and other collection actions. However, this option has long-term consequences for your credit score, your assets, and your reputation, and it may not always be advisable or affordable.
- Voluntarily surrender the collateral: You may choose to give back the collateral to the creditor voluntarily, without waiting for them to seize it, and accept the consequences of repossession. This option could save you time, money, and hassle, and give you some control over the process and the outcome. However, this option also has pros and cons, which we’ll discuss next.
Voluntary repossession: Pros
Let’s start with the pros of voluntary repossession:
- Avoid forced repossession: By voluntarily surrendering the collateral, you can avoid the embarrassment, stress, and potential damage to the property that could result from forced repossession. You can also avoid the risk of confrontation, litigation, or criminal charges that could arise if you resist repossession or try to hide the property.
- Save money on repossession fees: By voluntarily surrendering the collateral, you can reduce the amount of repossession fees and expenses that the creditor could charge you, such as towing, storage, legal, and auction fees. These fees can add up quickly and make your debt even larger. By giving back the collateral voluntarily, you can minimize the costs and negotiate a settlement with the creditor that may be less than the full amount owed.
- Preserve some credit score: By voluntarily surrendering the collateral, you can mitigate the damage to your credit score that repossession could cause. While repossession will still appear on your credit report and lower your score, voluntary surrender may be seen as a slightly less negative event than forced repossession. Additionally, if you negotiate a settlement with the creditor, you may be able to arrange for them to report the debt as “paid in full” or “settled for less than the full amount,” which could help your credit score in the long run.
Voluntary repossession: Cons
Now, let’s move on to the cons of voluntary repossession:
- Lose the collateral: By voluntarily surrendering the collateral, you lose your right to keep it and use it. This could be a significant loss if the collateral is essential for your work, your family, or your lifestyle. You may also have sentimental or emotional attachments to the collateral that you cannot replace easily.
- Damage to credit score: By voluntarily surrendering the collateral, you still incur a negative mark on your credit report, which could lower your score and affect your ability to get credit in the future. Additionally, if you don’t negotiate a settlement with the creditor, they may pursue you for the deficiency balance, which is the difference between the amount owed and the amount they can recover from selling the collateral. This deficiency could also appear on your credit report and harm your score.
- Legal and financial consequences: By voluntarily surrendering the collateral, you may still face legal and financial consequences, such as deficiency judgments, wage garnishment, or tax liability. These consequences could vary depending on your state laws, your income, and the creditor’s actions. You should consult with a legal or financial advisor before making any decision about voluntary repossession.
So, should you choose voluntary repossession or not? The answer depends on your specific circumstances and priorities. If you cannot afford the payments, the collateral has depreciated or becomes a burden, and you want to avoid the hassle and the costs of forced repossession, voluntary surrender may be a reasonable option. However, if you have equity in the collateral, you can afford to keep it, and you want to preserve your credit score and your legal rights, you may want to explore other options, such as negotiation or refinancing. Remember that repossession is not the end of the world, nor is it the only option you have. With some planning, communication, and cooperation, you can overcome this challenge and move forward.
A good option when facing financial struggles (albeit probably too late if you are facing a repossession) is to add a tradeline to your name. You can pay to be added as an authorized user to someone with a good credit card. See below.
Resources
The following is a list of resources to start learning about tradelines. We have a list of tradelines for sale, and a tradelines FAQ. Also various posts about tradelines, and a chart of tradeline prices from competitor sites. Finally, a contact form to ask further questions.
Please feel welcome to ask any questions below.
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