Car repossession is a very embarrassing experience for car owners. You would have to give up the luxury and convenience of owning a vehicle when you need it the most. Car repossession does not happen all of a sudden and shouldn’t come as a surprise.
You must have missed several payments and received warnings before the final act was carried out. Paying off debt after a car repossession should be your priority. But, what options do you have for paying off this debt now that your car has been repossessed?
Know Your Deficiency Balance
Getting your car repossessed does not mean that you are debt free. Even once a vehicle has been reclaimed, you will still be held responsible for any amount of what you owed that was not covered by the sale of the car. This is called Deficiency Balance. Let’s say you still owe $3,000 on your vehicle and the lender only manages to fetch $2,500 for it at auction, you will have a deficiency balance of $500.
You will also owe the cost of the repossession itself, the storage of the vehicle while it was waiting to be sold, and the costs of selling the vehicle. The costs can add up quickly.
Obligated Pay After Car Repossession
There are several options you have after your car has been repossessed. You can, if you are able to, simply pay the deficiency amount in full. If it’s relatively small, this might be reasonable and will help you avoid the additional stress of having to deal with other options.
If the amount is not so easy to pay off, which is common after repossession, then you typically have the option of making a payment plan with the lender. This will allow you to slowly pay back your deficiency balance over time rather than all at once.
Sometimes, if you can prove that you are in dire financial straits, the lender might agree to settle for a percentage of what you owe them.
If you choose this option and can come to an agreement, you will likely need to pay off the full amount of the settlement immediately. There can be tax consequences if you choose this option, so you should consult with an attorney rather than going it alone.
If you absolutely cannot pay what you owe, then you may need to declare bankruptcy. Doing so will hurt your credit for a long time to come, so it should truly only be used as a last resort. You could also just try to wait it out, as there is usually some delay between the time that your car is repossessed and the time that the lender sends out a collection notice for the deficiency amount.
Best Options – Paying Off Debt After A Car Repossession
As stated earlier, there are several options you can take to pay off your debt, and the best one for you will depend on your financial situation.
The best option for your credit score is going to be to make a lump sum payment for the total amount or to set up a payment plan with the lender. Ask a family member for a loan, sell things around the house, or pick up a side job to try to fill the gap.
Doing so won’t make your credit score immediately recover from the hit it took by having a repossession on record, but it will undoubtedly help you get on the road to getting back on sound financial footing faster than the other methods will.
This may not always be a viable option as you may be in deep financial crisis. In this case, negotiating a settlement or declaring bankruptcy might be the best option that you have. It might not solve all of your financial problems, but it will give you the peace of mind that comes from no longer having to deal with this particular lender or debt collector.