Car repossession can occur when you don’t make payments

| June 2, 2017 | 0 Comments

Courtesy photo

Capt. Kendall Kemelek
Legal Assistance Office

SCHOFIELD BARRACKS — Buying a car is a major financial decision.

Americans bought a record 17.6 million new cars last year showing lenders are ready and willing to extend credit to buyers in the market.

The car buying process works like this. The buyer signs a contract to buy a new car. The dealer secures financing for the purchase unless the buyer is paying the full price of the car via cash, credit or check. The car sale and purchase agreement, once signed, is usually final. The buyer gets a car, and the obligation to pay on a car loan at the same time every month until the car is paid off in full.

Is there a way to give a car back after it is purchased?

Yes. This is called voluntary repossession. There are a variety of reasons people return cars to the bank. The most common situation is where the buyer realizes the monthly payment is too high.

Sometimes, the buyer misses making monthly payments. If you fail to make timely payments on your car, the lender may try to recoup their financial loss by physically taking the vehicle in a process known as repossession. While repossession is often an involuntary procedure, there is also an alternative called voluntary repossession, or voluntary surrender.

Involuntary and voluntary repossessions

In a standard repossession, lenders send a repossession agent to collect the vehicle – and you never know when that will happen. The agent might get the vehicle from your home, your work or wherever you leave it parked. Repossession agents can follow you or they might use GPS to locate the vehicle.

If you’re not ready to hand over your car, this can be an anxiety-producing and inconvenient event. For example, what if they take your car when you’re far from home and you need to pick up your children?

With a voluntary repossession, you eliminate the chaos and cost of dealing with the repo man. You simply inform your lender that you will not make payments going forward and that you want to surrender your car. You set a time and place, you bring the vehicle (as well as a ride home) and you turn over the keys.

A voluntary repossession affects your credit

Payments you may have missed leading up to your voluntary repossession will go on your credit report. The repossession itself will also go on your credit report.

Both pieces of negative data will remain on your credit report for seven years. Your credit score will take a hit, but the exact amount of damage depends on the other information on your credit report.

A voluntary repossession doesn’t cancel out your loan

Turning in your vehicle doesn’t let you off the hook for your auto loan. The lender will auction or sell your vehicle and apply the sales proceeds to your loan.

If the sale price is less than your loan balance, you’re still responsible for the remaining balance; this is called the deficiency balance. For example, if you owe $5,000 and the vehicle sells for $3,500, you will still owe $1,500.

You should make arrangements with the lender to pay the deficiency balance. If you do not, the lender may turn the debt over to debt collection, and the collector may place the debt on your credit report.

The lender may also sue you for the debt. If the lender wins a judgment, the lender may also get court permission to garnish your wages for the remaining balance.

Protections with involuntary repossession

Even though giving a car back to the bank, or voluntary repossession, does not relieve your obligation to pay for a car, there is good news regarding involuntary repossession. If a member of the armed forces falls behind on car payments, the Servicemembers’ Civil Relief Act (SCRA), 50 U.S.C., Section 3952, prevents a bank from involuntarily repossessing the service member’s purchased or leased vehicle or other personal property without a court order.

What does that mean? If you are unable to make one or more car payments, a bank cannot take the car from you without an order from a court stating it may take your vehicle from you without your permission. This includes cars purchased before entering military service. The only requirement is that the service member-owner made a deposit or installment payment toward the car loan or lease before military service began.

The benefit of Section 3952 is time. If a financial emergency occurs or a service member is deployed and receives late notice of misdirected or missed payment, federal law protects against immediate repossession without a court’s approval. The service member can sue a lender who violates the SCRA involuntary repossession law. If found liable in a court of law, a repossessor without a court order is subject to criminal liability.

Get legal and financial advice

Because cars are a big monthly expense and purchase agreements are binding, it is important to chart your finances and ensure you can comfortably afford to pay for any car you buy for the length of the loan.

Remember, a voluntary repossession, though nice-sounding, does not relieve your obligation to pay; it may not even reduce your monthly payment. In an involuntary repossession situation, remember that lenders must obtain a court order, first.

If you have any questions about repossession, visit the Schofield Barracks Legal Assistance Office, 278 Aleshire Avenue. The office appointment line is 655-8607.

No appointments are required during walk-in hours on Tuesdays from 10 to 11:30 a.m. and Thursdays from 1 to 330 p.m.

Bring all your documents with you, especially the purchase contract for the vehicle and any other correspondence from the lender regarding the loan.

(Editor’s note: Kemelek is a Legal Assistance attorney.)

Category: Education, News

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