What is a Charge Off?
If you come across the term “charge off” on your credit report, you may think that it means the debt can no longer be collected. Unfortunately, that is not the case. When a debt has been charged off, it has most likely turned over to a collection agency for collection. In some cases, the collection agency is being paid to collect the debt for the original lender. In other cases, the debt has been sold by the lender as now in the hands of a collection agency who will attempt to collect the debt for their own gain. In either case, you are still responsible for the debt.
How is a Repossession Different?
When a creditor takes possession of your vehicle, or other collateral, because you are delinquent in your loan payments, it is called a repossession. In the case of the car loan, your vehicle is considered the collateral for your car loan. The contract signed when you bought the car allows the lender to take your collateral and sell it. The proceeds from the sale of the car will be applied to your loan, but you will still owe any balance that remains after the sale. This is called a deficiency balance, and it won’t be released until you pay off the remainder of the loan.
If your car or other collateral (such as jewelry, furniture or other personal property used to secure a loan) are repossessed, most states will allow you to catch up on your payments and have your property returned to you. You will be required to pay your entire past due balance, plus the money spent by the lender to repossess the property.
Is a Charge Off Better Than a Repossession?
While neither scenario is good, in most cases, a charge off is better than a repossession. When a car is repossessed, the lender not only gets to keep the money you’ve already paid, they take your vehicle and you will still owe the deficiency balance after the vehicle is sold. On the other hand, when an unsecured car loan is charged off, the debt will be discharged, and you will not owe any more money.
Can You File Bankruptcy on Charged Off Accounts?
Charged off debts must be disclosed along with all other debt when you file for bankruptcy. Car loans are usually considered a secured debt when you file for bankruptcy, as long as you still have the vehicle in your possession. On the other hand, if the lender has repossessed the vehicle and sold it to recoup some of their losses, the debt then becomes unsecured. If the charged off debt is unsecured, it will usually get discharged during your bankruptcy, so you will no longer owe the debt, but you will also have lost the vehicle.
Can Bankruptcy Eliminate a Car Loan Deficiency After Repossession?
When you file for bankruptcy, you may be able to reinstate your loan and stop a repossession completely by making your arrearages part of your three to five-year payment plan. This could be very helpful because it will allow you to spread your payments out rather than coming up with everything you owe all at once.
In cases where the vehicle was repossessed by the lender before you filed for bankruptcy, you may actually be able to get your car back if you act quickly enough. You may only have 10 days to act before your car is sold at auction.
In conclusion, filing for bankruptcy could be helpful in the case of repossession or charge off, but you must act quickly, especially if you want to keep your vehicle. Enlisting the help of a bankruptcy attorney could speed up the process while ensuring that you come out ahead as much as possible.