You probably already have an idea of what repossession means. It’s when you lost the collateral you put up to get a loan which can be things like a car, home, land, or personal property.
However, there may be some more important things you still do not know such as the problems you might face later on. When your property gets repossess, it leaves a negative mark on your credit history and ruins your credit score. This could potentially cripple your finances and limit your chance to get affordable financing in the next following years.
For seven years, repossessions will stay on your credit report. In the beginning, they can have a big impact on your credit score but the damage starts to heal over time and will completely be removed seven years after you first became delinquent with a payment.
There is also a possibility of your account being turned over to a debt collection agency. The agency will sue you in court and the worst-case scenario is, have your wages garnished. Therefore, failure to pay can result in grave consequences.
To put it simply, repossession is reclaiming ownership of something that has not been paid off but is still valuable. Cars are the primary asset involved in repossession in most cases, but it could also be real estate, artwork, jewelry, or any asset that is tangible and can be sold to recoup money for the loan balance that wasn’t paid.
One type of repossession is a home foreclosure. The term however is most commonly associated with auto loans. The car title will say the lender is the lien-holder and can reclaim the vehicle if he fails to make a payment on time.
Technically, the lender can take action to repossess the property tied to the loan as soon as a credit account is delinquent. In the case of having a car loan, miss the payment could mean the bank could repossess the vehicle without letting you know. They can reclaim your property for as long as they don’t “breach the peace,” or use threats of force.
The lender usually contracts with a third-party company to retrieve the property. For cars, they will use a towing service that specializes in auto repossessions. A court order is not necessary for the lenders to start the repossession process. As soon as you miss the payment, they can shift into gear. They usually wouldn’t want that to happen since repossessing a car usually nets the lender only 30% of the loan value. However, this becomes their best recourse if you are late or missing payments.
It is difficult sometimes impossible for the borrower to reverse the situation once the property is seized. The account is charged by the lender and may even go to court to pursue the borrower for any due amounts that weren’t paid, also called the “deficiency.”
Taking immediate action to cure a loan default before repossession occurs is the best thing for all parties. Reaching out to the lender is the primary way to avoid repossession before you miss a payment and request them to negotiate a settlement that makes the account current. You may also talk to a representative from the bank or credit union where you received the loan and offer them a proposal that’s reasonable and that will ensure that you are making the next payment and when you expect to get back on track completely.
The lender, in most cases, would rather come to some type of payment arrangement that your property back which may be worth much less than you balance from the loan and require more expenses before the creditor can sell it on the open market profitably.
You may also find a debt consolidation loan with a lower interest rate than what you currently pay on the car loan if you want to avoid repossession. You can ask a family member or a close friend to co-sign a loan for you.
Each state has its own laws and regulations regarding repossessions so it’s best to consult with an attorney in your area if you find yourself in repossession. A repo company for instance usually cannot trespass on private property to reclaim a car but typically, they may have limited privileges to take the car from your driveway. What they can’t do however is to enter your garage to repossess the car.
In rare cases, you may call the police promptly to save your car from being taken. Again, state and local laws vary but the police are responsible to keep the peace and may have grounds to intervene if the law is broken by the repo teams. In general, the repo team cannot be helped by local authorities since the situation is a private matter involving a lender and borrower and must be resolved by the court of law.
JG Tax and Financial Services