All states allow you to get your car back by redeeming the contract within a certain period of time after the repossession. To redeem the contract, you pay off the entire car loan, along with repossession and storage costs. Most people don't have the cash on hand to do this. If you don't reinstate or redeem the car by the deadline, the lender will sell the car. If the sale proceeds don't cover the amount you owe to the lender, plus costs of repossession, storage, and sale, you may be liable for the balance, called the deficiency.
With car repossessions, there is almost always a deficiency. The lender can then try to collect the deficiency balance from you. So expect collection calls and letters. Sometimes the lender decides for accounting purposes that the loan is uncollectible. It might "charge off" the loan -- meaning it claims the uncollected loan as a business loss. The lender can still sell the uncollected loan to a collection agency, however.
To learn more, check out our section on Your Car in Bankruptcy. The information provided on this site is not legal advice, does not constitute a lawyer referral service, and no attorney-client or confidential relationship is or will be formed by use of the site. The attorney listings on this site are paid attorney advertising.
In some states, the information on this website may be considered a lawyer referral service. Please reference the Terms of Use and the Supplemental Terms for specific information related to your state. Lawyer Directory. If your loan is secured, the lender has greater incentive to repossess your vehicle than charge off your account.
The Federal Deposit Insurance Corp. For example, lenders must charge off auto loans when they are days delinquent, but they may charge off past-due accounts sooner. A debt may also get charged off within 60 days of a lender receiving notice that someone has filed for bankruptcy.
Even if the lender decides to no longer attempt to get payment on the account, it might sell the debt to a third party like a collection agency, which will continue to try to collect the unpaid balance. Charged-off accounts that get reported to the credit bureaus can remain on your credit reports as a derogatory mark for up to seven years. Some state laws let you reinstate your loan after a repossession if you can bring the loan current by paying the amount you are behind on your loan plus any costs the lender incurred during the repossession.
This is the difference between what you owe — including repossession and sale costs — and what your lender earned when it resold your car. While you might get to keep your vehicle if your auto loan is charged off, both charge-offs and repossessions negatively affect your credit history and could impact your ability to qualify for a loan in the future. Lenders often try to sell repossessed properties to recover the cost.
So if the sale price doesn't cover the balance on the account, the lender might come after you for the rest of it. Sometimes, after trying to get payments and assessing your situation, a lender might write off, or charge off, your balance as bad debt or a loss. Collection procedures therefore continue, and the lender might look for a court judgment or send your account to a collection agency.
The collection agency can either represent the lender or buy the debt. Your charged-off account also remains on your credit report for seven years.
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