If you’re behind on a debt or loan payments, you might be worried about the creditor repossessing something you own, like your car. Repossession is what happens when a creditor takes property put up as collateral because you’ve defaulted on the debt. Strict rules control what a creditor can and can’t take if you default. While credit agreements differ and laws vary from state to state, generally, creditors can repossess: What Items Can Be Repossessed?If you fall behind in payments for a secured debt or fail to comply with an important term of the security agreement, you’ve defaulted. In some cases, like if you let insurance lapse or you become insolvent, the lender might have the right to declare a secured debt in default, even if you’re current on payments. Under most security agreements, the creditor may then take the property you pledged as collateral without going to court and getting a judgment beforehand. Here are a few items that creditors can generally repossess if you default: What Items Can’t Be Repossessed?Creditors who don’t have a security interest in an item of property can’t take it without a judge or court clerk’s approval. Be aware, however, that the creditor can always sue you in court to recover the money you owe. If the creditor wins the lawsuit, it might be able to garnish your wages, put a lien on property you own, or seize and sell your personal property. How Can I Avoid Repossession?If you’re behind on your payments for a secured debt, it’s a good idea to communicate with your lender. Your lender might be able to offer you a solution such as a reduction in payment amount or interest rate that can help you catch up on your payments and avoid repossession. Two Types of RepossessionThere are two major types of repossession: voluntary and involuntary. How Repossession Impacts Your CreditRepossession hurts your credit score and can make your financial life more difficult for years to come. Any late payments leading up to the repossession will damage your credit score once they’re reported to credit bureaus. The repossession itself will be listed in the public records section of your credit report as well. If the lender obtains a deficiency judgment for the balance of the auto loan, that judgment will also go on your credit report. If the debt is sold to a collections agency, the new account will show up as a new entry on your credit report that will also lower your credit score. Repossession and the associated negative items will remain on your credit report for seven years, even for a voluntary repossession. You may be able to avoid repossession by catching up on your delinquent payments. Talk to your lender to find out how much you need to pay to bring your account current again. Late payment entries may still show up on your credit report. However, by catching up on your payments, you can avoid having your vehicle repossessed. If your loan payments are too high, consider refinancing into a new car loan with more affordable payments. The refinanced loan may lower your monthly payment with a longer repayment period, lower interest rate, or both. Because refinancing often requires you to have good credit, you should start trying to refinance your loan before you miss any payments. Missed payments may disqualify you for a refinance, or if you do qualify, the loan terms may not get you into a lower monthly payment. Repairing Your Credit After RepossessionHaving repossession will impact your credit significantly, but not forever. The impact on your credit score will lessen as time passes and as you make timely payments on your other credit obligations. Make Up the Late PaymentsJust because you are late on a payment does not automatically mean you are in default. Some agreements may state that you are in default if you are one day late with the payment. Other agreements may state that you are not in default unless you are 30 days late or more. Even if you are late, the loan might not be in default until the creditor tells you it is, usually in writing. If you are not yet in default according to your loan documents, you can head off repossession by bringing the loan current. Read your loan agreement carefully. When you do make up the late payments, make sure to include all applicable late fees and charges. If you do not, then you might be in default because you didn’t make the payments in the entire, correct amount. If you are habitually late with payments, you might be putting yourself at risk. On one hand, if the creditor consistently accepts payments, it might have legally waived its rights to declare a default. On the other hand, it is never a good idea to rely upon the creditor’s acceptance of future late payments because it may change its mind. Reinstate the LoanEven if you are in default, you might have the right to reinstate the loan. If you reinstate the loan, you can prevent repossession or, if the car was already repossessed, get the car back. With reinstatement, you bring the loan current by making up all of the past due payments, including applicable fees and late charges, in one lump sum. This is also called the right to cure the default. Not everyone has the right to reinstate, however. Some state laws provide the right to reinstate your car loan. Even if your state doesn’t provide for this right, your loan agreement might specifically state that it allows reinstatement. In many instances where reinstatement is allowed, you only get one bite at the apple. If you default again, you may no longer have the option of reinstating the loan. (Learn more about reinstating your car loan.) Redeem the CarAfter repossession, you usually have a right of redemption. This means that if you pay the entire outstanding balance due on the car loan, you can get the car back. The redemption amount, or “payoff,” often includes not just the outstanding principal and interest on the loan but also repo fees, storage costs, and perhaps even attorney fees. You don’t have a lot of time to redeem the car. Your right of redemption ends when the car is sold. Negotiate with the CreditorSometimes you can approach the creditor and negotiate an alternative way to get the car back or reduce or eliminate the debt. Some options include: Sell the Car YourselfTypically, a creditor will sell the car at a public auction or a private dealer sale, which don’t always realize the maximum value of the car. If you can sell the car to a buyer willing to offer more than what the creditor is likely to obtain at a dealer’s sale or auction, this may be the route to go. A creditor may be agreeable to this option because it saves on resale costs, such as advertising and storage fees. This can be a difficult option to exercise, as you only have a limited time to do so. The buyer must have the cash or financing readily available. More importantly, you need the creditor’s cooperation. The creditor can refuse to consent to the sale for the wrong reason, an arbitrary reason, or no reason at all. However, you may be able to use its refusal to cooperate as a basis for defending against any deficiency claim, especially if the creditor sold the car for less than what your private buyer was prepared to pay. Surrender the VehicleIf you are in default, habitually late on payments, or simply wish to get out from under the car loan, you may consider surrendering the vehicle to the creditor. Ideally, in exchange for your surrendering the car, the creditor will agree to waive or reduce the deficiency. The incentive for the creditor is the savings in time and money by not having to repossess the car itself. You should surrender the car only after you have reached an agreement (in writing) that settles the deficiency. If you surrender the car without some sort of waiver agreement with the creditor, then it may still pursue you for the entire deficiency balance. On the other hand, if the circumstances are such that the costs of repossession would be passed on to you anyway, then it might be better for you to surrender the car even without an agreement with the creditor, as a way of reducing your overall debt. Your personal, financial circumstances will ultimately determine whether surrendering the vehicle is in your best option. Bring Your Complaints to the Bargaining TableYou don’t have to wait for the creditor to sue you before trying to settle. If the creditor violated your rights with respect to the repossession and sale of the property, you may informally use your defenses (and potential counterclaims) to persuade the creditor to give the car back, reinstate the loan, redeem the vehicle or forgive or reduce the amount of the deficiency balance. Refinance the Car LoanThe creditor (or you) may offer to refinance the loan, usually for a longer term. Or you may find another lender willing to extend you credit to refinance this loan. While this is a tempting option, especially if the new installment payments are lower than the original payments, it might not be in your best interest in the long run. Some things to consider in refinancing the car loan include: Repossession LawyerWhen you need legal help with a Repossession in Utah, please call Ascent Law LLC for your free consultation (801) 676-5506. We want to help you.
Ascent Law LLC
8833 S. Redwood Road, Suite C West Jordan, Utah 84088 United States Telephone: (801) 676-5506
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