How to Avoid Repossession: A Practical Guide

Getting a car can be exciting, but then, life happens, and sometimes, making payments on time is difficult. You risk getting your car repossessed if you miss monthly payments. Fortunately, you can take precautions to avoid this unfortunate situation entirely.

We’ll discuss helpful tips to avoid the stressful repossession process and the role of bankruptcy when you’re being repossessed. It’ll give you an idea of navigating the best situations wherein you’re unsure of your financial standings when paying for your car.

When Can Your Car Get Repossessed?

Here’s the thing: there is no universal rule of timings when it comes to car repossession. Select states permit the loan creditor to repossess the car immediately if you don’t make payment without any warning. Others require creditors to provide a small window to cure your debt and avoid repossession. This is why checking your state laws regarding repossession is vital if you’re in shaky financial standing.

Tips to Avoid Car Repossession

Before reaching out to a bankruptcy attorney, consider these practical tips to help you avoid repossession. These strategies can save you from unnecessary stress.

Trade Your Current Car For a Cheaper One

The trade-in value of your next car can help you manage the financing of your current one. If the next car’s value is higher than the amount you owe your lender, it’d be easy to trade. Your latest car dealer will buy your ‘old’ car and pay your debt. They will put whatever’s left toward the new vehicle, giving you an advantage.

Plus, making monthly payments for a cheaper vehicle is more manageable. You don’t have to choose a brand-new car. You can even opt for a used but stable model.

Cure the Late Payments

Late payment doesn’t automatically mean you’re in default. As mentioned, regulations on vehicle repossession depend on the state. Select states provide you the ‘right to cure’ payments, which is also known as the ‘right to reinstate.’

Essentially, you must make up for the late payments so you don’t get into default on your auto loan. You might have to pay late fees, depending on what’s stated in your contract.

Approach a Credit Union to Refinance Your Loan

When asking another lender to help you manage car payments, you must be discerning. You should be mindful of the bank or lending institution’s interest rate and other fees when looking for solutions to handle your loan balance. If the interest rate exceeds your current loan agreement, it might not be the most practical solution.

A credit union can help you refinance your loan with reasonable terms. When exploring options, focus on payment plans that make your monthly payments manageable. Credit unions typically offer better rates than most lenders, but it’s important to compare your choices carefully. The goal should be to simplify loan management, not just find a quick fix for your debts.

Contact Your Bank or Car Loan Provider

Confer with your loan provider or bank to weigh your options. As much as possible, you should avoid voluntary repossession and losing your vehicle altogether. Your car loan provider can give you practical choices on how to avoid repossession. You might even learn options that you didn’t consider before.

The Power of Communication and Negotiation

Being honest about your position and inability to make monthly payments can help you manage costs. Discussing your financial troubles openly with your lender might lead to something good. You can explore financing or modifying your loan to reduce monthly payments.

When negotiating to avoid the repossession process, you should display humility. You are better positioned to get friendlier payment terms if you’re kind to your loan provider. Simultaneously, you should be reasonable when negotiating with your creditor. You can develop a sustainable solution together to avoid repossession altogether.

Try a Lease Transfer

One of the most practical debt relief solutions is transferring the financial responsibility to another person. You should look for someone else to handle the loan balance to avoid repossession. You need to look for someone who’ll be able to manage the original lease agreement.

This solution relieves you of the payments altogether. However, you’d have to give up your car. This trade can benefit the new owner because the overall fee for the car loan would be reduced. Some people are open to this setup if the car is in excellent condition.

Sell the Vehicle

You’re given rights on the said vehicle when you sign a loan agreement. You can sell the car for a reasonable price and use the money you made from the sale to pay off a good portion of the loan. Ideally, you should seek a buyer that would shoulder the remaining balance.

That’s why you should be careful when pricing the car. You shouldn’t price it too cheaply so you won’t be burdened further. You should remain practical when trying this tactic to avoid repossession.

Can You Have a Repossessed Car Returned?

In most cases, the repo company or car lender would allow you to get your car back. This provided that you settle the outstanding balance on the vehicle. You can also try to reinstate your loan and negotiate a new payment plan that is within your means.

You should be mindful of the timings if you want to sort out your car loan after the car has been repossessed. You’re usually provided a written notice when your vehicle is slated to be auctioned or sold privately. That’s why acting swiftly if your car has been repossessed is best.

Bankruptcy and Car Repossession

If you file a Chapter 7 bankruptcy, an automatic stay goes into effect. This prevents lenders, including car loan providers, from collecting payments. However, the lender can request that this be lifted to resume collection attempts.

While the automatic stay is in effect, you should take advantage of it and make payments. This can help you avoid repossession altogether. There’s a chance that your lender would reduce your primary balance or monthly payments once they learn of your bankruptcy situation.

You can also choose to file a Chapter 13 bankruptcy. Your car loan provider must stop collecting payments until the judge confirms your new debt repayment plan. Seeking legal assistance might be more practical to avoid repossession.

However, you should ensure to make payments according to the latest plan to prevent getting repossessed in the future. You should seek assistance from a bankruptcy lawyer if you want better guidance on this option.

Special Considerations for Service Members

The Servicemembers Civil Relief Act or SCRA stipulates that the vehicles of active duty service members cannot be repossessed while they’re on active duty. This provided that the car loan agreement was signed before the military member entered active duty and that they’ve made at least one monthly payment.

This particular SCRA protection is effective as long as the service member is on active duty and for up to 90 days after leaving active duty service. However, if you signed an SCRA waiver, the repossession may still legally proceed.

Conclusion

Not making timely payments doesn’t automatically mean your car will be repossessed. You should be strategic when handling situations wherein making monthly payments is challenging to avoid getting repossessed. Fortunately for active duty service members, the SCRA protects them from getting their vehicle repossessed.

Proving one’s active duty status is vital to SCRA protections. SCRACVS can help you get the evidence you need to avoid getting repossessed. Click here to sign up at SCRAVS and verify the active duty status.

FAQs

What should I do if I receive a repossession notice?

There are various options to consider. You can negotiate a more practical payment plan with your loan provider, look for someone else to pay the remaining amount, or sell the car. You can also try filing for bankruptcy to handle payments better.

What are the consequences of repossession on my credit score?

Having your car repossessed will stay on your credit report for seven years. Your credit score will also drop, making it hard to secure higher-value loans.

Can declaring bankruptcy affect your credit report?

Yes, it can have a negative effect on your credit report. Declaring bankruptcy means you’re unable to make payments on debt as per the original agreement. This puts you in an unflattering light.

Do cars immediately get repossessed after missing monthly payments?

It depends on where you’re from. State laws on car repossession vary, so it would be best to confirm what the regulations are in your state. Some states give you the right to cure your unpaid monthly payments. Others grant the lending company immediate permission to repossess the vehicle.

Do I need an attorney when getting my personal property repossessed?

It may be a practical step, especially if your rights were violated during the repossession process. A lawyer can help you explore legal options for recovering your car.