How long does a voluntary surrender of a vehicle stay on your credit report?

If you stop making payments for your automobile loan and it is repossessed, a repossession will appear on your credit report for up to seven years and will significantly lower your credit score. The lender will also send an agent to physically repossess your car, potentially causing an embarrassing situation in front of your family, friends or co-workers.

What if you decide to contact your lender, acknowledge you cannot repay your auto loan and voluntarily surrender the car back to the lien-holder?

While this can also negatively impact your credit score and will remain on your credit report for up to seven years from the original date of delinquency, it might be considered a more responsible way to deal with a difficult financial situation.

How do I voluntarily surrender my vehicle?

If you have decided to voluntarily surrender your vehicle you will need to contact the finance company or lien-holder and arrange a time to bring the car to them. Do not simply drop off the vehicle and walk away without making sure the vehicle is going to be returned to the finance company. Next, get the agent's name and contact information.

After you have returned the vehicle it is likely the creditor will place the vehicle up for sell and notify you of the sale. Keep in mind, if the creditor sells the vehicle for less than the amount you owe on our car loan you may be responsible for paying the difference. This difference is called a deficiency balance and will be owed whether you choose a voluntary surrender or the car is involuntarily repossessed.

Considering bankruptcy should I voluntarily surrender my car?

If you are filing bankruptcy, bankruptcy lawyers advise against voluntarily surrendering your vehicle prior to bankruptcy. Although your car may eventually be taken and sold to generate funds to repay creditors, there may be several steps you can take to keep your car.

If you have already voluntarily surrendered your car before you filed bankruptcy, however, you may be able to include your deficiency balance in your bankruptcy filing. If you file Chapter 7 bankruptcy the deficiency balance may be reduced or eliminated. If you file Chapter 13 bankruptcy the deficiency balance may be included in your bankruptcy repayment plan, and there is a good chance the amount you will have to pay will be lower than what you owe on your car loan.

Keep in mind, if you voluntarily surrender your vehicle prior to filing bankruptcy this action will still go on your credit report as a repossession. If you decide to surrender your vehicle within the bankruptcy (the trustee takes the car and sells it) this will not appear on your credit report as a repossession. The bankruptcy, however, will appear on your credit report for 7 to 10 years and will reduce your credit score significantly. If you have already surrendered your vehicle but you have decided to file bankruptcy, talk to a bankruptcy lawyer.