Paying a Charge Off on a Repossessed Car
Car repossession is a serious issue, and its associated problems don't stop after the credit agency takes your car. The bank could file a lawsuit and eventually garnish your bank account or wages if you still owe a balance after the repossession. That makes it a smart move to pay a "charge off" after a repossession. A charge off is a debt the creditor considers noncollectable. However, a charge off does not end your responsibility for the car loan. After repossession the credit agency sells your car at auction or through a private sale, and holds you responsible for any remaining balance.
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Instructions
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Contact the credit agency by calling the telephone number on your auto loan statement. Or refer to other notices the credit agency mailed to you. Ask the credit agency for the remaining balance and ask that the agency send you a statement.
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Share the statement and information about the repossession with a consumer affairs attorney. State and federal laws require banks and other credit agencies to follow certain guidelines when selling repossessed vehicles. For example, if you car is worth $10,000 at the time of repossession the bank could not sell it to an insider for $500 and then force you to pay an unfair remaining balance on the loan.
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Settle the balance -- and charge off -- after determining that the amount due after auction is fair and correct. Credit agencies refer to remaining balances after auction as a "deficiency balance." A deficiency balance is an unsecured debt, the same as credit cards. "The New York Times" that unsecured debts are often settled for 20 to 70 percent of the balance. Settle the account by contacting the credit agency and offering 20 percent.
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Increase your offer, gradually, to 40 percent if the credit agency balks at your original offer. Politely end the conversation if the credit agency will not accept your offer.
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Ask the attorney to mail a letter to the credit agency indicating you want to settle the charge off but can only afford to pay 40 percent. Allow the attorney to continue the negotiations. The key is to settle the debt for as little as possible because paying the full amount won't help your credit score. The charge off and repossession have harmed your credit so the best outcome for you now is to end the issue by driving a hard bargain for less than the full balance. The lawyer can use her patience and experience to reach a reasonable agreement with the credit agency.
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Negotiate the settlement yourself if you would rather not use an attorney. The credit agency may agree to an installment plan if you cannot pay a settlement in a lump sum. However, the credit agency may insist on the full balance if it agrees to installments.
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