Repossession can leave you carless and in debt—learn how to protect yourself before it's too late!
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CHAPTERS
00:00 - Repossession and Debt Issues
01:44 - Options to Manage Car Debt
03:05 - Exploring Voluntary Repossession
03:24 - Considering Bankruptcy Solutions
04:07 - Seeking Professional Help
In this episode, I examine the intricacies of car repossession and its implications for vehicle owners facing outstanding debt. Responding to a listener's inquiry, I clarify that banks primarily sell repossessed cars at auction to recover loan balances, often at significantly lower prices than owed. I discuss the factors contributing to diminished auction values and emphasize the importance of taking proactive measures when confronted with financial difficulties. By advocating for open communication with lenders, exploring refinancing options, and considering private sales or voluntary repossession, I provide actionable solutions. Additionally, I address bankruptcy as a last resort for those overwhelmed by debt and stress the value of seeking professional guidance to navigate these challenges effectively.
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STEVE'S RESEARCH NOTES
1. Repossessed Cars and Auction Sales
Fact: When a car is repossessed, the lender typically sells it at an auction. Auction prices are often much lower than the car’s market value because repossessed cars are sold "as-is," without repairs or detailing. Auction buyers are often dealers looking for bargain prices to resell the cars.
Source: National Automobile Dealers Association (NADA), Consumer Financial Protection Bureau (CFPB)
2. Deficiency Balance
Fact: After a repossession, if the car sells for less than the loan balance, the remaining amount is called a "deficiency balance." Borrowers are still responsible for this amount, even though they no longer have the car.
Source: CFPB
3. Voluntary vs. Forcible Repossession Trends
Fact: Voluntary repossessions, where the borrower surrenders the vehicle to the lender, and forcible repossessions both contribute to the rise in repossession numbers. Voluntary repossessions made up over 50% of finance company disposals in 2020 due to financial protections during the pandemic but dropped to 14% in 2022 as protections expired. However, as economic pressures rise, voluntary repossessions are expected to increase again.
Source: Motor Auction Group (MAG), Credit Connect
4. Voluntary Repossession
Fact: Voluntarily surrendering a vehicle may reduce fees and give borrowers more control over the process compared to a forcible repossession. However, the negative impact on credit is similar to an involuntary repossession, and borrowers can still owe a deficiency balance.
Source: Federal Trade Commission (FTC), Ascend Finance
5. Bankruptcy and Repossession
Fact: Filing Chapter 13 bankruptcy can stop repossession and allow borrowers to keep their car while reorganizing their debts into a manageable payment plan. Chapter 7 bankruptcy can discharge other debts in as little as 120 days, sometimes allowing borrowers to keep their car if they continue making payments.
Source: National Consumer Law Center (NCLC), U.S. Bankruptcy Court
6. Refinancing as a Strategy
Fact: Refinancing an auto loan may reduce monthly payments and help borrowers avoid repossession if their credit has improved or if better interest rates are available.
Source: Experian
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