Understanding the Difference Between Repossession and Charge Off

When you take out a loan to purchase a car or home, the expectation is that you will repay the money in installments. If financial difficulties make it impossible to meet this obligation, the lender has the option of repossessing the asset or charging off the debt. 

What Is Repossession?

When you miss a certain number of payments, the lender may repossess, or take back, the property. With homes, a foreclosure action begins, while movable assets like motor vehicles are taken and stored, sometimes at your expense. 

In most states, Oklahoma included, you have a small amount of time to reclaim the property before the creditor sells it: this step, which is called “reinstating the loan,” usually involves the repayment of all arrears in addition to any administrative or legal fees the lender incurred to take the asset. You can reinstate your loan through a Chapter 13 bankruptcy repayment plan.

While most repossessions are involuntary, you can choose to surrender the property if you can no longer afford it and negotiate a settlement with the lender. While lenders often sell repossessed assets to recover their money, they could still come after you for the balance if the sale price doesn’t cover everything, so settlements can save you time, money, and stress.

What Is a Charge-Off?

Sometimes lenders write off a debt as a loss after trying and failing to collect from you. The Federal Reserve also directs lenders to charge off credit card debts that are 180 days late and car loans or installment loans that are 120 days late.

This step doesn’t mean that you’re off the hook. You still legally owe the debt, so the lender could send your account to a collection agency, sell it to a debt buyer, or seek a court judgment. Your credit report will also indicate that the account was charged off.

Charge-offs are more frequent with unsecured debt, like credit cards and medical bills. If you file for Chapter 7 bankruptcy, you can reasonably expect these obligations to be discharged. With a Chapter 13 filing, you will pay any surplus monthly income to creditors over a three-to-five year period.

Which Is Worse?

On the surface, repossession seems like the worst option because your loss is twofold: you lose the asset and the lender keeps all the money you’ve paid up until you defaulted. You could also be on the hook for repossession and storage fees in addition to any deficiency between the amount you owe and the sale price received by the lender. However, a charge-off is equally difficult because your debt is not paid: the lender or a debt buyer is free to hound you for the money at any time.

Contact an Oklahoma Bankruptcy Attorney

At the Law Offices of B. David Sisson, we help clients make an immediate and positive impact in their lives. We can help you stop lawsuits, debt collector calls, foreclosure, and other collection actions by filing for personal bankruptcy. Attorney Sisson is board-certified in bankruptcy law (one of the few attorneys in Oklahoma with this distinction) and will give you the right advice for your financial situation. To schedule a consultation today, please contact us.

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