What are the consequences to a voluntary repossession?

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What are the consequences to a voluntary repossession?

My father recently passed away and my mother can no longer afford to make the payments on the RV that is only in her name. If she does a voluntary repossession can they lien her house and collect when it is sold someday?

Asked on November 4, 2010 under Bankruptcy Law, Florida

Answers:

M.D., Member, California and New York Bar / FreeAdvice Contributing Attorney

Answered 10 years ago | Contributor

Voluntarily returning the vehicle to the creditor may reduce their expenses in retaking the car and may reduce the amount that your mother will owe them. Although, she will still be responsible for paying any shortfall on the loan and her creditor may still enter the repossession on her credit report.  You should also be aware that once a car has been repossessed, a creditor may decide to keep the car as compensation for the debt or resell it (public or private sale). However, whatever it decides to do, a creditor must notify a borrower about what will happen to the car.  If they decide to keep the car, a borrower have the right to demand that it be sold instead.  This may be the preferred option especially if the car is worth more than the amount owed on the loan.  If the car is sold at a public auction, a borrower must be notified of the date in advance. If sold at a private sale, a borrower will be notified of a date after which it will be sold.

As to any resale, it must be conducted in a "commercially reasonable manner." For example, a resale price which is well below fair market value may be unreasonable and there may be a claim against the creditor for damages or a defense against a "deficiency judgment".  A deficiency judgment is the difference between what a borrower owes on their loan and what a creditor receives when reselling a car. If a creditor has followed the proper procedures for sale, it is allowed to sue the borrower for a deficiency judgment to collect the loan balance. 

If such a judgment is granted, your mother's creditor may attach certain of her assets and property. However in FL, collecting on a money judgment is often more challenging than obtaining that judgment since the state law provides unlimited protection to homesteaded property so long as the property occupies no more than ½ acre within a municipality, or 160 acres outside of a municipality.  A judgment lien on the homestead property does not allow a judgment creditor to force a judgment debtor to sell the property or do anything irregular with it, and a judgment debtor can live, enjoy and transfer the property under the state testacy laws with a judgment lien on it.  Furthermore, after 20 years a judgment lien expires.

Note:  Other assets may still be at risk however.


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