Bankruptcy vs. Voluntary Repossession

The major difference between bankruptcy and voluntary repossession is whether you want to keep your property such as an automobile while you make the payments. If you’re behind in payments, there are plenty of options. For instance, you can negotiate with the lender to pay the back amount and current payments. However, there are other options.

The Bankruptcy Option Means You either Repay Your Debts or Have Them Discharged

Personal bankruptcy is a legal process that allows you to either discharge (eliminate) or repay your debts. There are two bankruptcy options. Chapter 7 is mainly for unsecured debts such as credit cards, medical bills and payday loans. The U.S. Bankruptcy Courts will relieve you of those debts if you don’t have the income to pay them. In other words, you won’t have to repay creditors. Chapter 13 is for unsecured and secured debts. Under a repayment plan, you make monthly payments to a bankruptcy trustee for three to five years. The trustee distributes the money to your creditors. Also, you’re responsible for making payments on your property to your bills current. The most important aspect of chapter 13 is that while you keep your car or home.

Voluntary Repossession Means You Give Your Property Back to the Lender

Voluntary repossession is a way to avoid the hassle of constant calls demanding payment or the lender taking your property. Let’s say you purchased a car and fail behind on payments or default on the car loan. When all negotiations or attempts to become current fail, the car dealer may ask to voluntary repossess the vehicle. If you agree, the dealership takes the vehicle. However, you still have to pay the money you owe. Yes, with voluntary repossession you can lose your vehicle and still have to pay for it, according to the Vermont Legal Aid. Another disadvantage is the repossession will still be on your credit report. There is an advantage to voluntary repossession. You won’t have to pay the repossession fee in addition to the money you owe.

Seek Legal Assistance before You File Bankruptcy or Agree to a Voluntary Repossession

Before you decide if bankruptcy, voluntary repossession or any other option is best for you, contact a lawyer. The lawyer will talk with you and review your situation. If bankruptcy is an option, the lawyer will file the necessary paperwork.