The Impact of Car Repossession on Your Credit Score
If you’re facing repossession, you already have so much to worry about. You may rely on your car to get to work, pick up groceries, and take care of your family. And on top of that, there’s an additional worry: car repossession and credit score fallout.
But sometimes, life throws you curveballs—like losing a job, unexpected bills, or other financial setbacks—that make it tough to keep up with car payments. And when that happens, it can be extremely difficult to keep your credit above water.
As a bankruptcy attorney, I understand these challenges, and I’m here to help you understand how car repossession can impact your credit score – and what you can do about it.
How Car Repossession Affects Your Credit
When your car is repossessed, the first thing that happens is the lender will report the repossession to the credit bureaus.
This alone can cause a significant drop in your credit score. It reflects as a negative entry because it shows that you were unable to fulfill the terms of your loan agreement.
Then, after the repossession, the lender may sell your car at an auction. If the sale doesn’t cover the full amount you owed on your loan (which is often the case), you’re still responsible for the remaining balance, known as the deficiency balance. If you fail to pay this balance, the lender might turn it over to a collection agency, which can lead to another negative mark on your credit report.
Essentially, each time you fail to pay on the deadline or due date, it can hit your credit.
Steps to Mitigate the Damage
By the time you face repossession, you likely already have seen problems with your credit. Any missed car payments at all will usually cause a drop, and over time those add up. So if you really want to get on top of the problem, you should work on your credit early on when you first start struggling with missed payments.
Here are some things that can help:
1. Communicate with Your Lender
Before your car reaches the point of repossession, reach out to your lender. Many lenders are willing to work with you if you’re experiencing financial difficulties. You might be able to negotiate a revised payment plan or a temporary pause on payments.
2. Consider Refinancing the Loan
If you’re struggling with high payments, another option might be to refinance your car loan. This can potentially lower your monthly payments and interest rate. However, you’ll need to check if you qualify for refinancing, especially if your credit score has already been impacted.
3. Review Your Budget
Take a close look at your budget. Are there expenses you can cut down on to allocate more money towards your car loan? Sometimes, restructuring your budget can help you catch up on missed payments.
4. Downsize
If you drive an expensive car, you may want to consider the possibility you’re living outside of your means. There’s no shame in getting a smaller or older car that won’t hit your wallet so hard. In my decades as a bankruptcy attorney, I’ve often seen this be the easiest and most necessary solution. But for a lot of people, it feels like the hardest.
How Bankruptcy Helps
For some people, you may be at the point where you simply can’t stop repossession or get out of debt without bankruptcy.
Bankruptcy offers a fresh start and a chance to rebuild. And because it’s overseen by the courts, it puts an immediate stop to repossession and all the creditor harassment that comes with it.
Rebuilding Your Credit, Even After Bankruptcy
If you’ve already been through repossession, or if you’ve used bankruptcy to stop a repossession, it’s important to focus on rebuilding your credit.
Fortunately, it’s a myth that once your credit score drops significantly, you’re doomed. There’s actually a lot you can do, and we’ve written extensively about the steps you should take to rebuild your credit, even after bankruptcy.
Remember, repossession doesn’t have to define your financial future. With the right strategies and guidance, you can recover and rebuild your credit score over time.
How I Can Help
As a bankruptcy attorney, I’m here to offer advice and support for any financial challenge you might be facing, including dealing with the threat of a car repossession. If you’re feeling overwhelmed, let’s sit down and discuss your situation.
We offer a free consultation where we’ll discuss your concerns and help you figure out the best steps forward. And we can always help with questions around repossession and your credit score.
Together, we can figure out the best path forward for you to regain financial stability and peace of mind.
To get started, just call us today at 901-327-2100 or contact us online.