What are my alternatives to repossession?
Ask your creditor about their willingness to work with you as you try to get your payments back on track. Prove a willingness to pay your debt by discussing the situation honestly and an ability to do so by getting new income or asking a friend for a loan. Inquire if the creditor can reconfigure your loan. Sometimes your missed payments can be added to the end of a new loan.
Whether you're already behind on your bills or worried you might fall behind soon, call your creditors. Explain your situation -- job loss, divorce, medical problems, or other troubles -- and ask for help. Suggest possible solutions such as a temporary reduction of your payments, skipping a few payments and tacking them on at the end of a loan, skipping a few payments and paying them off over a few months, dropping late fees and other charges, or even rewriting a loan.
If you need help negotiating with your creditors, consider contacting a nonprofit debt counseling organization. You can find a list of counseling agencies by location at the website of the U.S. Trustee, www.usdoj.gov/ust (select "Credit Counseling and Debtor Education.") The federal government has authorized the agencies on this list to provide counseling to debtors considering bankruptcy. However, don't pay anyone to "fix" your credit.
If you are far behind on your car payments and can't catch up, you may not be able to afford the car. One possibility is voluntarily "surrendering" your car before the dealer repossesses it. This saves on from paying repossession costs and attorneys' fees. Ask for concessions from the dealer before giving up the car. A dealer might waive its right to collect the amount left owing on the loan or promise not to report the default or repossession to credit bureaus.
In a voluntary repossession of a vehicle, a lender may sell the vehicle and try to collect any difference owed between the loan amount due and the sale price. The lender may also add on costs for towing, repossession, storage, late fees, auction, interest, reconditioning, and other costs. If the lender gets a judgment for these claimed losses and you are unable to pay, it it possible the lender may get a judgment lien on your assets, garnish wages, or attach bank accounts, in order to collect on the judgment.
Depending on the situation, a lender may consider one of the following:
Loan Workout: A loan workout modifies the original loan agreement. Some of these changes may include forbearance (e.g. forgiving a portion of the debt or late charges); deferment; renegotiating interest rate, monthly payment amount, principal amount, maturity date; or the enforcement an acceleration clause in the loan.
Deed in Lieu of Foreclosure: After the borrower is in default, the borrower voluntarily delivers title to the lender for consideration and the lender accepts the conveyance of the property in full satisfaction of the mortgage debt. Using this method, the lender saves the costs of foreclosure and the borrower avoids having a notice of default on his/her records. (Hamud v. Hawthorne, 52 Cal.2d 78 (1959).)
Short Sale: A short sale is a transaction in which a lender allows the real property securing the loan to be sold for less than the remaining mortgage amount due and accepts the proceeds as full payment of the loan. A lender may accept a short sale when the borrower is in severe financial straits and market conditions make a short sale the best choice to mitigate the lender's damages. Like a deed in lieu of foreclosure, this saves the lender the costs of foreclosure and the borrower avoids having a foreclosure on his or her credit report.
Short Payoff: With a short payoff, the lender accepts less than the remaining mortgage amount as full payment of the loan. The property need not be sold.