Consumers sometimes consider voluntary repossessions or surrenders of their vehicles when they are unable to meet their payment obligations under their car notes or loans. A voluntary surrender occurs when the consumer contacts the finance company or lender and makes arrangements to turn over the vehicle. The creditor then may send a repossession company to take possession of the vehicle at an agreed location and time, or the creditor may direct the consumer to bring the car to a certain location. In contrast, an involuntary repossession occurs when the creditor takes the vehicle from the consumer, often in a stealth manner and to the consumer’s surprise. Any involuntary repossession of a consumer’s vehicle must be done without a breach of the peace. For example, the repossessor cannot take the car from a gated and secured area.
There are many factors to consider in deciding whether a voluntarily surrender is the right option. Note that this post discusses voluntary surrenders regarding car purchases, not leases.
To begin with, the process after a voluntary surrender is the same as the process after a repossession. The finance company or lender will sell the car at an auction sale and apply the proceeds of the sale to the consumer’s account balance. If, as is normally the case, the sale proceeds are in less than the account balance, the finance company or lender will demand that the consumer pay the remaining balance, known as a “deficiency balance”. Thus, surrendering a vehicle does not relieve the consumer of the potential to owe a deficiency balance.
That said, surrendering a vehicle gives consumers the same rights as an involuntary repossession. In California, the consumer generally can “reinstate” his or her note or contract by paying all amounts past due, plus any applicable delinquency charges, collection and repossession costs. Upon reinstatement, the car will be returned to the consumer and he or she will begin paying on the contract as if there was no default and repossession.
Additionally, finance companies and lenders are required to issue compliant written notices to consumers after repossession or a voluntary surrender of vehicles, and to sell the vehicles in a commercially reasonable manner. If a written notice following surrender of vehicle does not comply with law and/or the creditor does not sell the vehicle in a commercially reasonable manner, the consumer will not owe a deficiency balance. For a discussion of California law regarding consumers’ rights following a vehicle repossession or surrender, see the post, Your Rights Following A Car Repossession. Importantly, an experienced automobile repossession lawyer may know whether a particular creditor’s post-surrender notice complies with California law, which could give a consumer insight as to whether voluntary surrender makes sense.
There is a common misconception that a voluntary surrender has less on an impact on a consumer’s credit score than an involuntary repossession. Any benefit is minimal. A repossession and a voluntary surrender are both very negative. Visit here for Experian’s discussion of the credit reporting impact of a voluntary repossession.
For a further discussion of car repossessions in California, visit our page, Car Repossessions.