I get it. If you’ve had something repossessed, you probably feel terrible about the whole situation. But it’s important to know that this may just be the beginning. Not only does repossession have a negative impact on your credit history and credit score, but you may still owe money.
In short, if you don’t take steps to figure the situation out now, you may land in bigger trouble later. I’m not trying to scare you — I’m just trying to drive home the point that this is a serious matter. So what should you do after repossession?
1. Figure Out Why the Item Was Repossessed
Obviously, something gets repossessed if you fall behind on your payments. But if that wasn’t the case, you’ll need to do a little bit of digging.
Depending on the state you live in, something as simple as not getting the necessary insurance that your loan or lease requires (especially for items like cars) can default your loan. As a result, your lender will have the right to repossess your stuff.
Call your lender to find out the exact reason your item got repossessed. That way, you can be clear on what it is you need to do to solve the situation.
When you call, try to keep your emotions under control and look at the situation objectively. It doesn’t help anyone if you get upset on the phone.
2. Ask If You Can Get the Item Back
In some cases, if you pay the loan in full plus any extra costs, you can get your item back before your it gets sold. It can be as simple as reinstating the loan and negotiating a new payment plan. You may still have the repossession on your credit report, but the new payments you make will count in your favor.
But before you try to get the repossessed item back, think carefully about whether you actually want it back. Ask yourself if you can realistically afford the payments and any associated maintenance costs. What happens if you fall behind on your bills again?
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If it makes more sense not to get the item back, then figure out what you owe on the loan and work to improve your credit score and history for the future.
3. Know Your Rights Under Your State’s Repossession Laws
There are repossession laws and regulations in place to protect you. For example, repo companies aren't allowed to trespass on private property to retrieve possessions. They also can’t disturb the peace, damage your property, or use excessive force during the repossession process.
Plus, you're legally entitled to any items that aren’t part of the repossession, such as items you stored inside your car. Depending on the state you live in, either you have to ask how to get those items back, or the repo company has to give you a list of items and tell you how to retrieve them.
If you feel that the company violated your rights during the repossession process, you should contact the police or an attorney to find out what to do. Make sure to take photos of any damage done during repossession.
4. Find Out Whether You Still Owe Money After Repossession
When a company repossesses something and sells it, you may still owe money on the amount you borrowed. For example, let’s say that the repo company sells your car for $5,000, but you had initially borrowed $6,000 to pay for it. That means you still owe $1,000.
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If you don't repay the amount that you owe, your loan may be sent to collections. Not only will you rack up even more interest, but your lender can also sue you for the balance. This means that you may face court proceedings, have your wages garnished, or even have a levy put on your bank account.
5. Work to Improve Your Credit Score After Repossession
As I mentioned before, having something repossessed will negatively affect your credit history. Your repossession will typically stay on your credit report for seven years, and your credit score will drop significantly. Unfortunately, there’s nothing you can do about that but wait.
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However, you can be proactive about improving your credit score. If you still owe money on the repossessed item, make sure to make your monthly payments on time or negotiate a more affordable rate with your lender.
Experiencing a repossession is not the end of the world. Learn why it happened, hold your head high, and see to it that you make better financial decisions moving forward.