How does Repossession Affect Credit?

08-May-2010 There tends to be a lot of focus in the news on bankruptcy and home foreclosure rates as indicators of the current economic crisis. But generally before consumers default on their mortgages, they miss payments on smaller obligations like credit cards and auto loans. If you have missed car loan payments and are worried about how repossession affects credit, here are a few things you need to know.

You Can Lose Your Car After ONE Missed Payment. While it is highly unlikely that your lender will repossess your auto after only one missed payment, most state laws on car repossession allow them to do so as soon as you default on your loan. You need to read your agreement to determine what constitutes a “default” on your loan.

Voluntary Repossession Does Not Let You Off the Hook. Whether the lender repossesses your auto involuntarily or you voluntarily surrender the vehicle, a repossession is a repossession.

You Can Buy Your Car Back. After the bank completes the steps necessary to repossess your auto, they must send you a Notice of Redemption. This form will tell you whether the lender intends to keep or resell your vehicle, and also that you have the right to redeem your vehicle. In order to do so, you will most likely be required to pay all arrears as well as any fees associated with the collection of your vehicle (i.e. late payment fees, towing charges, etc.).

Even if Your Car is Repossessed, You Are Still Responsible For the Debt. Most of the time when a car is sold at auction, the lender is unable to sell it for an amount equal to or greater than the amount owed. The difference between the two amounts is still the responsibility of the borrower. Whether or not to try to collect this amount is at the discretion of the lender. If they do attempt to collect the debt, they must follow the guidelines of the Fair Debt Collection Practices Act.

Seven Years is a Long Time to Pay for a Car. Repossession stays on your credit report for seven years from the date you last made a payment on time. It is something that will be looked upon unfavorably by future lenders and creditors and will make it difficult for you to finance another vehicle in the near future. The best way to minimize the damage to your credit report is to continue making other payments on time to avoid defaulting on any additional loans.

While car repossession seems relatively straightforward (you don’t pay, the car won’t stay), you do have rights and your lender has a responsibility to complete the repossession legally. If you are concerned that your car was or will be repossessed illegally, you should consult a qualified legal professional. Lastly, the best way to protect your credit from repossession is to avoid it in the first place. You should contact your lender as soon as you are in danger of defaulting on your loan or contact a qualified legal professional who can advise you of your options and how repossession affects credit.

Chang and Carlin
The content found on the Chang & Carlin site is not legal advice and is purely for informational purposes. The information contained herein is not a substitute for the advice of an attorney and does not create an attorney-client relationship. If you are interested in obtaining information about chapter 7 bankruptcy, chapter 13 bankruptcy, foreclosure services, real estate legal services, you are encouraged to call our law firm at 866-790-8601 or Request a Free Legal Evaluation. Chang and Carlin serves clients in Chicago, Schaumburg, Joliet, Warrenville, Waukegan, Illinois.

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