If you find yourself experiencing trouble keeping up with payments on a secured debt, such as a car loan, you may want to consider a voluntary repossession. A voluntary repossession is when you agree to give the car over to the creditor in exchange for being absolved of liability over the loan.
Since the car itself is used as collateral on the loan, defaulting on the loan could lead to the car being repossessed by the creditor without your knowledge or participation. Voluntarily giving up the car to the creditor is not an ideal situation but can be beneficial in several ways.
The idea in a voluntary repossession is to get out from under the debt owed on the loan. When your return the property to the creditor, they will most likely sell the property to satisfy the debt. In some cases, the property may be unable to be sold at the full value of the debt owed, leaving a deficiency balance.
In many cases, you may be required to pay the deficiency balance on the loan before you can be removed from liability. However, what you may owe in the way of a deficiency balance is far less than the total amount of debt owed. Many people find that they can obtain relief of their debts much faster and easier than alternative options.
Repossession of property under a loan is never a good situation for your credit, although the bulk of the damage is done the moment you begin to default on the loan. However, many lenders are willing to look more favorably on a voluntary repossession than involuntary repossession. The reason is that you took the initiative to resolve your debt troubles rather than ignore them or have them eliminated through other options, such as bankruptcy.