Repossession and Charge-off: How Do They Affect You?

Repossession and charge-off may seem like the same things, but they aren't. Repossession occurs when you are making payments on an item that is in your possession. If you are making car payments or mortgage payments and can no longer make the payments, repossession could occur, since the car is collateral for your debt, or what is known as a security interest. Of course, when a home is involved it is referred to as "foreclosure." A charge-off happens with a loan contract such as with a credit card or personal loan. If you are unable to make your credit card or personal loan payments, the bank or company that provided the line of credit or loan eventually charges it off.

In this article, you will learn more about repossession and charge-offs in Oklahoma and how they affect your credit as well as how you can improve your credit. If you have questions after you have read this article about debt management for your life, schedule a free consultation with the Law Offices of B. David Sisson.

Repossession in Oklahoma

In Oklahoma, the term "repossession" most commonly applies to a repossessed car. If you miss a certain number of payments, the lender may decide to repossess your vehicle and store it. Not only will you owe the back payments on the vehicle, but you could also be charged repossession expenses if you want to get your vehicle back.

Oklahoma state law gives you a small amount of time to do what is called "reinstate the loan."

This means that you are given an opportunity to stop the auto repossession so that the lender does not sell the vehicle.

You're allowed to repay the whole amount owed:  everything that you owed that caused the repossession as well as the repossession fees (which may include administrative and legal fees).

You can also reinstate your loan through a Chapter 13 bankruptcy repayment plan. Chapter 13 bankruptcy is different from Chapter 7. Chapter 13 does not require you to give up any of your personal property (unlike Chapter 7 where you can only keep assets that are exempt). Chapter 13 requires you to submit a repayment plan for your debts, but it also allows you to catch up on your past-due payments (such as unpaid car and house payments to stop repossession and foreclosure). Then, during the next three to five years, you will use your disposable income to pay your debts as approved by the bankruptcy court, including any loan contracts.

Many auto repossessions are involuntary, which is legal as long as the repossessors do not breach the peace, but this isn't always the case.

You have the option to surrender your property voluntarily. However, that will not reflect any differently on your credit score or improve your credit than an involuntary repossession.

Regardless of whether the repossession is voluntary, if you do not reinstate your loan, the lender sells the asset to recover some of their money. If the lender does not receive enough to cover the balance, they may come after you for the remainder. Depending on your circumstances, it could be beneficial for you to consider settling with the lender. A settlement could help you pay less than what you owed, as well as save you time and stress.

Charge-offs in Oklahoma

As previously explained, a charge-off is not quite the same as a repossession. In fact, car loans and home loans can also become charge-offs. If a lender cannot collect from you, the Federal Reserve directs them to charge off credit card debts that are 180 days late. Car loans or installment loans are charged off if they are 120 days late.

Once a debt is charged off, this does not mean that you are no longer responsible for the debt. It will still affect your credit score. The lender could sell the debt to a debt buyer. The debt buyer may decide to sue and try to collect. If you're sued, not only will your credit report show the charge-off, any default judgment against you will also show.

Charge-offs are most common with unsecured debts such as personal loans, credit cards, and medical bills. Depending on what led you to be unable to afford your payments, filing for Chapter 7 may give you the opportunity to improve your credit in the future and protect you from collection attempts, including lawsuits filed by creditors. Chapter 7 is generally chosen when you do not have the finances in place to afford a monthly payment to support a Chapter 13 repayment plan.  

Download "Ten Myths About Bankruptcy Debunked"

Is Repossession Worse Than a Charge-off?

While a repossession may seem worse than a charge-off at least at first glance, the truth is that they are both equally difficult. With auto repossession or any type of repossession, you lose the vehicle or item and the lender also keeps everything you paid. Then, there are the repossession expenses that you could also be obligated to pay. This may include storage fees, administrative fees, and legal fees. If the item is auctioned, you could be required to pay the difference in value.

Yet, a charge-off means you continue to owe the full amount. The debt could be sold to a debt buyer. In fact, it could be sold more than once. It could be reported to your credit not just by the original lender, but also by the debt buyer. You could be sued while also being harassed by both the lender and the debt buyer to pay what is owed.

How to Improve Your Credit

A repossession or charge-off isn't the end of the world, but it does impact your credit score. First, if it is just one repossession or a charge-off, determine whether settling the debt is the best option for you. Settling the debt means you pay it off for less than you owe.

  • You need to get the settlement amount in writing from the lender or debt buyer.

  • Do not give them access to your bank account. 

  • Pay them via certified check.

  • Keep a copy of all correspondence so that you can prove you paid off the debt.

Other ways to improve your credit: 

  • Create a budget. A budget can help ensure you make your future payments on time.

  • Making on-time payments can help improve your credit.

  • Do not take on more future payments than you can handle.

  • If necessary, consider bankruptcy.

While bankruptcy does affect your credit, it also stops lawsuits and debt collector calls. It can help stop foreclosure and repossession. It can give you the fresh start you need to improve your credit and credit score. To learn more about Chapter 7 and Chapter 13 in Oklahoma as well as other debt solutions that might be right for you, schedule your free consultation with the Law Offices of B. David Sisson.