Involuntary Repossession

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Involuntary repossession is a legal process in which a lender takes ownership of the borrower’s collateral property, such as a vehicle, when payments are not being made.

How Involuntary Repossession Works

The involuntary repossession process most commonly occurs when a borrower fails to make timely payments on their auto loan.  This is one of a few types of repossession or ‘repo’ that can take place as a car buyer.

Involuntary Repossession Process

  1. Notice of Default – Lenders do not typically jump to repossession quickly without giving adequate notice to the borrower. A notice of default highlights that payments have been missed and warns of repercussions.
  2. Court Order – The lender may obtain a court order that grants them the right to take possession of the collateral item – in this case, the vehicle.
  3. Repossession – After everything is handled from a legal standpoint, a repossession agent will physically take the vehicle. This is different from a voluntary repossession, where the buyer surrenders the car themselves.
  4. Auction – The lending institution will then sell the item, typically through an auction, and use the sale proceeds to pay off any remaining balance on the loan.
  5. Reconcile Balance – It is common that the sale price at auction fails to cover the full balance owed on the vehicle. If this is the case, the borrower will still owe that difference to the lender. The difference between the auction sale price after a repo and the balance owed on the vehicle is called a “deficiency” or the “deficiency balance”.

How to Avoid Involuntary Repossession

Even if you think you’re facing a repo, or have received a default notice from your lender, avoiding involuntary repossession is possible if you take the right steps.

  1. Catch up on payments – If you’re able to make payments to get your auto loan up to date, you can avoid having it repossessed altogether. However, this is often not a possibility with a delinquent loan.
  2. Negotiating new loan terms – If making all delinquent payments isn’t possible, negotiating a payment plan you can afford may be an option to explore. 
  3. Consider alternative financing options – If needed, be sure to explore every option available for alternative financing to avoid defaulting on your loan payments. This could be through buy-here-pay-here dealers with in house financing, or through low income auto financing programs.

Consequences of Involuntary Repossession

Having a vehicle involuntarily repossessed can have serious and costly consequences. 

Credit scores are often severely damaged as the incident is reported to major credit bureaus and financial institutions, which may make future lending or borrowing more difficult. 

Additionally, repossession fees from the lender can range from several hundred dollars to a few thousand dollars, depending on the amount of money owed or the overall value of an item. 

It’s important for those in financial distress to be aware that this type of event does not just go away but has long-term effects, both financially and emotionally.