Can a finance company charge off an auto loan and still repo it?
The steps that are taken when an Auto loan becomes delinquent are as follows.
- Your lien / title holder company ie. "GMAC, Ford Motor Credit ext" ( From hear and on will be referred to as creditor) sends you your statement say $300.00. You then fail to make payment after approximately 10 days, "maybe less maybe more" will contact you by phone to enquire about the status of your now delinquent payment. "Has it been mailed out, what was the postage date, did you include the late charge (if applicable) ext." If the answer is no then the conversation will shift into "When do you plan to send payment, please include the late fee (if applicable) some creditors may be willing to take a half now and a half next week payment plan depending upon your history and circumstances. The bottom line is they want to get paid according the loan agreement and the first offence will most likely be soft served. The creditor's (CSR)customer service rep just needs a commitment to a date of payment that is all he or she is not a collector.
- So you provide a date (10/12/2007) and a payment amount of only $300.00 because the CSR waves the late fee. Well October 12th comes and goes and you once again fail to send payment and or to contact your creditor with an extension request and explanation. This is when the follow up letter arrives on 10/20/2007 addressing the October 12th agreement. The letter informs you of the number of days you are late and that the late fee has now been applied along with next months payment a new balance of $675.00 is due. The creditor will also include an expected payment date that will most likely be your billing date for November. "Lets say November 1st.
- After reviewing the new balance and experiencing whatever distressing emotions that follow, you fail to pay again. In the back ground your creditor starts to put things in to motion and you account is placed into there collections department. This type of collection is internal and in most cases there sole purpose is to get you back on track with your payments. They will first contact you by phone and try to find out why you are having trouble paying. As long as you have a legitimate reason ie, "the car has been in the shop with a recurring issue" any thing else is subject to heavy scrutiny. (Know this there state lemon laws and a federal lemon law that may protect you and your creditor if and when chronic repair issues with long time lines to identify and solve arise. This will detour your creditor from aggressively perusing your delinquent payments and in some cases they will forward the over due balance to the end of the loan term. So save all your repair documentation receipts in a safe place.
- So let's say you provide a legitimate explanation that the vehicle is in the shop. Your creditor forwards the $675.00 to the end of your loan extending the payment period by 2month and waves the late fee again. You soon receive a letter stating the forwarded amount and the extended term. The letter also requests your signature agreeing to the new loan term and proof of the chronic repair issue. You sign the agreement only you fail to keep all your receipts and are unable to provide a proper time line. Your creditor may or may not over look the minor gaps in the service time line. Let's remain positive say they over look the lack of receipts and solid time line. Your creditor forwards the delinquent amount and then you receive a statement in the mail on December 1st for $300.00.
- Again you fail to pay. Now 90 days have passed with no payment to your creditor and your records of the "alleged" chronic repair are slim to none. Your creditor now becomes a predator and the gloves come off. Aggressive collections calls come from the creditor's internal collections department and they are demanding payment in full or they will move to reposes your vehicle. The next letter from your creditor states this tragic news with a 10 day dead line. At this point your creditor will still be willing to negotiate a payment plan. Remember they want the MONEY not the vehicle that lost $5000.00 in value the moment it let the dealers' lot. But to keep this blog from going on for ever you don't agree to any payment arrangements.
- You have two options that come with the same credit penalty. Reposition or voluntary reposition. Uninformed people who are ignorant to credit reporting and scoring and the auto reposition industry will tell you to take the lesser of two evils and do a voluntary reposition. This is a common misconception. Understand that reposition is reposition it is scored equally on your credit and carry the same decretory penalties with time lines of seven years or more depending upon your state of residents. When the word "reposition" is lead with the word "voluntary" it only benefits the driver of the wrecker who picks up your vehicle. You creditor will post a status in there request to cease your vehicle as in-voluntary or voluntary. In the event of your creditor posting an in-voluntary status to the reposition summons the towing company may seek aid from your local law informant agency when picking up your vehicle. If the status is voluntary the wrecker will show up sometime some day at the location you disclosed to your creditor and pick up your vehicle. At this point your vehicle is taken straight to auction. It is your responsibility to request the balance due after auction from your creditor.
- Say the purchase price was $21,905.89 you made 4 payments totaling $1,200.00. "We will leave interest out for simplicity." At the end of the 90 days you wracked up a past due balance of $1,125.00 this includes all three $75.00 late fees. Your payment received against purchase price becomes $75.00 leaving your pay off balance at $21,830.89 before auction. I will give you the benefit of the doubt again and we will say the vehicle auctions for $8,100.00. As your creditor I originally cut a deal with you that would benefit me to the tune of $21905.89 plus an interest rate at say 5.5% totaling $12,047.75. This brings the total investment your creditor made in you to $33,953.64 at the end of you loan term. I will assume you financed your vehicle with the auto maker's bank. The dealer had, say maybe $16,905.89 wrapped up in the actual price of the vehicle when it arrived on the lot. Your loan agreement stood to make your creditor the automaker "because you used there bank" a profit of $17,047.75. Instead the deal went sour and the vehicle auctioned for $8,100.00 and the creditor is left with a profit of $8,947.75 this leaves your creditor with a negative balance of -$25,005.89 "this includes interest and late fees witch you are still responsible for.
- On the other hand your creditor has a tax burden and is obligated by federal law to address it with in six months of the first delinquency payment. The term used to describe, what becomes a tax credit to your creditor is called "Charge-off." In the case of a reposed vehicle your creditor will post the following to one or all four credit burros "depending on your state of residents." "Charge-off" (profit or loss) consumer account status reposition / voluntary
- Depending on your state of residents. This will stay on you credit report for a minimum of seven years in accord with the Fair Credit Reporting Act.
- At this point your creditor has no use for the account and it gets farmed out to clearing houses that rotate the negative account through hundreds of scavenger collectors. This is where the BIG emotional problems start. Those of us how are ignorant and uninformed or don't have time to read the Fair Debit Collections Practices Act and have lawyer it could spell financial and or legal disaster.