Voluntary vehicle repossession is when a debtor surrenders their vehicle to the lender due to inability to make payments, hoping to avoid fees and penalties. It may not release the debtor from paying off the loan. Involuntary repossession is costly and time-consuming. The debtor is still responsible for the remaining loan balance and the repossession may negatively impact their credit score.
Voluntary vehicle repossession is a strategy involving a vehicle owner choosing to proactively and voluntarily surrender that vehicle to the lender who holds a lien on the vehicle, usually because the debtor can no longer afford to make payments on the auto loan . This type of car repossession is sometimes used in hopes of preventing the accumulation of various fees and penalties that only add to the debt, while also providing the lender with an opportunity to sell the repossessed car and partially offset the outstanding balance owed on the loan. Depending on local laws, voluntary vehicle repossession may or may not release the debtor from the responsibility to pay off the car loan, either through garnishment of his or her salary or some other court-ordered action.
This type of fetch action is very different from involuntary fetch. With the former, the debtor brings the vehicle to the lender, along with the registration and other legal documents relating to the property. These documents are handed over to the lender, together with the vehicle keys. At that point, the debtor acknowledges that he no longer has any right of ownership or use of the vehicle and that the lender is free to dispose of the asset as he pleases.
Conversely, involuntary recovery typically requires the lender to spend a significant amount of time and money locating the debtor and the vehicle. Additional expenses are incurred while obtaining the necessary documentation for a court-ordered recovery and hiring professionals to collect and tow the vehicle from its location to a lender-designated depot. Unlike voluntary vehicle foreclosure, involuntary repossession can take weeks or even months, as the debtor may take steps to avoid repossession by moving frequently or otherwise evading the lender’s efforts.
One of the misconceptions that is often associated with voluntary vehicle recovery is that once the vehicle is assigned to the lender, the debtor no longer has any kind of financial obligation. In many cases, this isn’t true. Even if the lender is able to sell the vehicle and cover a portion of the outstanding auto loan, the borrower is still responsible for covering the difference. Another myth insists that voluntarily divesting the vehicle will prevent the action from damaging the debtor’s credit rating. Voluntary repossession of the vehicle does not prevent the lender from reporting the foreclosure action to credit agencies, which means that even with a voluntary surrender there is still a good chance that the credit rating will decrease by at least a hundred points.
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