What Is Repossession?
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Repossession — the seizure of property that usually occurs as a result of nonpayment of a debt — can happen quickly and without warning. Although some lenders may technically be able to repossess collateral immediately after a missed payment, most repossessions take place on accounts that are 10 days or more past due.
Any item used to secure a loan or a line of credit can be subject to repossession if the debt goes into default. This can include your home (which means foreclosure), your car or any other item that you purchased with credit, such as furniture, electronics, appliances, boats and motorcycles.
Read below to learn about how repossession works, how to avoid it and what to do in the event that your property is repossessed.
How repossession works
There are two types of repossession: involuntary and voluntary. Involuntary repossession occurs when the lender sends a debt collector to seize the defaulted property in order to secure the loan. Voluntary repossession, on the other hand, occurs when the borrower decides to surrender the collateral to avoid the additional costs incurred when there’s an involuntary repossession.
In both cases, the lender will sell the surrendered property to recover as much of the outstanding balance as possible. You will then owe any remaining balance not satisfied by the sale. You will be notified about the sale and can even participate in the bidding. However, keep in mind that only cash is accepted at auctions. If you had the money, you would likely have made the payments in the first place.
How to Avoid Repossession
The best way to avoid repossession is to be up-front with your lender if you’re having difficulty making payments. In most cases, they would rather negotiate a payment plan than repossess the item, especially if you are underwater with your loan and the lender is unlikely to get enough from a sale to satisfy the debt.
Discuss payment options or changes to your loan terms with your lender that will not negatively impact your credit history. Also, be sure to secure a written agreement — not a verbal one — as that’s the only way to protect yourself if the lender violates any conditions of your updated contract.
Avoiding your creditors if they contact you about an overdue balance is not a good idea. If they feel you aren’t responding to normal communications, they may find it necessary to get your attention using more aggressive methods, such as repossession.
Once completed, repossession is a fact that you cannot easily erase. In fact, it will appear on your credit history for seven years.
However, the consequences of voluntary and involuntary repossession are not the same. If you return your property to your lender voluntarily, you may avoid additional fees. Further, you will have peace of mind that a debt collector is not going to show up at your door.
In either type of repossession, be sure to order your credit reports so that you can examine the details. If any of the information reported by the lender is incorrect, you can dispute it.
If you feel that your property has been improperly repossessed, you can hire an attorney to dispute the repossession. There are many laws governing the repossession process, so if you document anything illegal, you may be able to get your property back.
Rebuilding credit after repossession
If the repossessing agent has done everything correctly and your vehicle or other property is gone forever, there is little you can do but try to rebuild your credit history and improve your credit scores.
You can sometimes add a statement to your credit reports explaining the circumstances that caused the repossession. It won’t remove the notice completely, but if there are extenuating circumstances, you’ll at least have a chance to describe them. But remember: While consumer statements on credit reports can be read by lenders (and might help mitigate concerns), they will not help you increase your credit scores.
While being involved in a repossession can be emotionally draining, it’s important to pick yourself up, review your finances and get back on track. Being proactive and reviewing your credit reports and finances will help keep repossession from happening again.