Sometimes circumstances change and people find themselves in a position where they can no longer afford their car payments. In an effort to do the responsible thing and avoid any further financial strain, they return the car to the dealer or lender. This is called a voluntary repossession.
In my experience, most people think that by voluntarily returning the car instead of having it forcibly repossessed, their credit will not be negatively impacted and they will not owe anything else on the car loan. Nothing could be further from the truth. Voluntary repossessions are treated just like involuntary ones in When a vehicle is repossessed under either circumstance, the vehicle will be reported to your credit as having been repossessed, which will harm your credit score and will remain on your credit report for 7 1/2 years from the date you started missing payments.
After a car is repossessed, it is sold at auction. Vehicles fetch much less than fair market value or even trade in value at auction. A used vehicle that you might buy for $8,000.00 at a dealership, might only be sold at auction for $2,000.00. The proceeds of the auction sale are put toward the loan balance. If the auction proceeds aren’t enough to pay off the loan, which they almost never are, you are responsible for repaying the rest, even if you turned the car in voluntarily.
Lenders will call and send you letters to try to collect the debt. If they really want to be aggressive, they can even sue you to collect the money still owed on the loan. If they win the lawsuit, they can freeze your bank account or take property that you own.
If you have a vehicle that you can no longer afford, don’t make the mistake of thinking that a voluntary repossession won’t hurt you. Your credit will still be harmed and you will still owe money on the loan if the car doesn’t sell for enough to pay it off. Luckily, filing for bankruptcy can help if you find yourself in this situation.
Whether or not the vehicle has already been repossessed, a bankruptcy can help you eliminate or repay the debt in a way that is affordable for you. Don’t let your car be repossessed without knowing your options for protecting yourself.