Voluntary foreclosure is when a debtor returns property used as collateral for a loan to a creditor instead of facing a regular foreclosure. This can be less stressful and cheaper, but it still negatively affects a person’s credit score. The debtor and creditor can agree on the delivery of the asset, and the creditor can sell the property and collect the remaining debt.
A voluntary foreclosure is a situation in which a debtor agrees to return property for which he still owes money to a creditor. This type of situation can arise when a person is late on payments for property used as collateral for a loan. In such a case, the debtor may agree to return the property to the creditor instead of having the creditor proceed with a foreclosure. For example, a person with a defaulted car loan may opt for a voluntary recovery.
When a person takes out a secured loan, a lender typically has the right to seize the collateral used for the loan. Usually, creditors give debtors a significant amount of time to recover their bills before starting the recovery process. Once it becomes obvious that a debtor can’t or won’t pay, however, they often send a collection agent to take the property from the debtor. For example, if the property in question is a car, the collection agent may tow the debtor’s car. Sometimes debtors decide to voluntarily surrender the property to avoid this process and the event is then referred to as voluntary repossession.
Unfortunately, a voluntary recovery usually doesn’t protect a debtor’s credit report. In most cases, voluntary and involuntary repossession both result in down grades on a person’s credit report. In fact, any type of repossession can lower a person’s credit score and stay on their report for several years.
Despite the fact that a voluntary repossession is unlikely to keep a person’s credit report intact, there are a few reasons why a person might prefer to voluntarily surrender property. To begin with, the costs associated with a regular foreclosure are often higher than those associated with a voluntary foreclosure. Since recovery costs can be added to the debtor’s total debt, voluntary recovery may be preferred. Also, some people may find voluntary foreclosure less stressful, as they won’t have their property removed when they least expect it, and there’s less risk of an embarrassing repossession in front of friends or neighbors.
When a debtor places a voluntary attachment, delivery of the asset in question is usually planned. The debtor and the creditor can agree on the date, time and place for the delivery of the property. Often the creditor proceeds with the sale of the foreclosed property and attempts to collect from the debtor the balance of the debt, minus the money received from the sale.
Protect your devices with Threat Protection by NordVPN
