A charge-off after repossession means the lender has written off your debt as a loss for accounting purposes, usually after 120–180 days of non-payment, and has taken back the collateral (e.g., a car). This indicates a severe default, resulting in a serious negative hit to your credit score.
Many of our clients wonder, “Is repossession a charge-off?” Not necessarily. While these events often occur together, a lender can charge off an auto loan without repossessing the vehicle.
You should pay off a repossession if you want your vehicle back (by paying the full loan + fees) or to avoid a large deficiency balance, which lenders can sue you for, but it won't erase the negative mark from your credit report immediately; paying it off might help you negotiate a "pay-for-delete" or at least stop collections, but your main goal is to stop further financial damage and collection calls.
Yes, a creditor or lender can still sue you after a charge-off, and they often do. That's because a charge-off is primarily a financial bookkeeping entry, not a legal release from debt.
A charge-off can appear on your credit report for up to seven years from the first missed payment (or delinquency) that led to the charge-off. After seven years, a charge-off should automatically fall off your credit reports.
A charge-off or two isn't the end of the world, but it can impact your credit score and your chances of getting approved for a car loan. If you work with the right lender, though, you could get approved for that loan you've been looking for.
WHAT IF THE LENDER DOESN'T REPOSSESS YOUR CAR? This means that: You are stuck with it – if the lender doesn't come to pick up the car. You can't sell it – because the lender still has the lien, and selling it would be committing a theft.
Your car could be repossessed, or you could be sued for repayment. Charged-off accounts also damage your credit score.
You may be able to pay to delete a repo. Contact your lender to see if they're willing to negotiate payments on what you owe. If they agree to a pay-to-delete and you pay the agreed amount in full, they'll request that the credit bureau(s) remove the repo from your credit report.
A charge-off could lower your credit score because it's considered a derogatory indicator. In simple terms, that means negative information. If you have a charge-off, it means you have late payments on your credit history, which could also hurt your scores.
The charge-off is an accounting action that has no impact on your legal obligation to pay the debt. You still owe the full amount, and the creditor or collection agency can still pursue collection efforts.
• A charge-off occurs when a lender writes off a delinquent auto loan as a loss, but this doesn't eliminate the debt. You are still responsible for paying the remaining balance. • You can negotiate with the lender to settle the charge-off for less than the full amount owed.
You should never pay a collection agency or charge-off account for these critical reasons: They purchased your debt for pennies on the dollar. Paying collections rarely improves your credit score. The debt may be past the statute of limitations.
Settling a Charge-Off
Borrowers hoping to achieve a settlement contact the lender, verify the amount owed, and attempt to negotiate an acceptable middle ground. Customarily, settlements are paid in a single lump-sum payment; however, borrowers may be able to score a reduced-payment plan.
A debt collector can't threaten to or have you arrested for an unpaid debt. If you're sued and you don't comply with a court order, though, you could be arrested.
Yes, you can legally keep driving your car after a charge-off-if it hasn't been repossessed yet and you're still insured and registered. The lender technically owns the car until the loan is paid, but as long as they haven't taken it back, you're not breaking laws by driving it.
Repossession Affects Your Credit
It is best for you to proactively address the situation and work with your lender to avoid repossession. But, if you have no other options, remember this is not the end of the world, and there are ways to rebuild your credit.
If the lender repossesses your car and sells it at auction for less than the amount you owe on your loan, you'll be responsible for paying the remaining amount, called a deficiency balance. This can include additional fees like towing, storage, and auction costs.