What is a Voluntary Repossession?

A voluntary repossession is a situation in which a debtor agrees to return property for which he still owes money to a creditor. This sort of situation may occur when a person is late making payments for property used as collateral for a loan. In such a case, the debtor may agree to give the property back to the creditor instead of having the creditor proceed with a forced repossession. For example, a person with a defaulted car loan may opt for a voluntary repossession.

When a person takes on a secured loan, a creditor typically has the right to seize the collateral used for the loan. Usually, creditors give debtors a significant amount of time to catch up on their bills before they begin repossession proceedings. Once it becomes obvious that a debtor cannot or will not pay, however, they often send a repossession agent to take the property from the debtor. For example, if the property in question is a car, the repossession agent may tow the debtor’s car away. Sometimes debtors decide to surrender the property voluntarily to avoid this process, and the event is then referred to as a voluntary repossession.

Unfortunately, a voluntary repossession doesn’t usually protect a debtor's credit report. In most cases, voluntary and involuntary repossession both result in negative marks on a person’s credit report. In fact, any type of repossession may lower a person’s credit score and stay on his report for several years.

Despite the fact that a voluntary repossession is unlikely to keep a person’s credit report pristine, there are some reasons a person might prefer to voluntarily surrender property. For starters, the costs associated with a regular repossession are often more than those involved with a voluntarily repossession. Since the costs of repossession may be added onto the debtor’s total debt, a voluntary repossession may be preferred. Additionally, some people may find voluntary repossession less stressful, as they won’t have their property removed when they least expect it, and there’s less risk of having an embarrassing repossession occur in front of friends or neighbors.

When a debtor arranges a voluntary repossession, the surrender of the property in question is usually planned. The debtor and creditor may agree on a date, time, and place for the surrender of the property. Often, the creditor goes on to sell the repossessed property and attempts to collect the balance of the debt, minus the money received from the sale, from the debtor.