What Happens If You Voluntarily Give Back a Car?
Understand the full implications and proper steps when you decide to voluntarily surrender your vehicle to a lender.
Voluntarily giving back a car, also known as voluntary vehicle surrender, is a process where a borrower proactively returns their vehicle to the lender because they are unable to continue making loan payments. This action is typically considered when an individual anticipates or is currently facing financial difficulties. It serves as an alternative to a forced repossession.
Understanding Voluntary Vehicle Surrender
Voluntary vehicle surrender is an action taken by the borrower, distinguishing it from a forced seizure by the lender. This choice is often made to avoid negative aspects associated with an involuntary repossession, such as towing fees or storage costs. While voluntary, it does not eliminate the borrower’s responsibility for the original loan debt.
Borrowers often opt for this approach to manage an unavoidable financial situation with some control. The lender will sell the returned vehicle, and the borrower remains accountable for any outstanding balance after the sale proceeds are applied. This step aims to mitigate immediate inconveniences, but the financial obligation persists.
Steps for Returning Your Vehicle
The initial step involves contacting the lender directly to communicate your inability to continue payments and your intention to return the car. This allows for a more organized process compared to an unexpected repossession.
The lender will provide specific instructions regarding the surrender process. These may include designated drop-off locations, scheduling, and required forms. Adhering to these guidelines helps ensure a smooth handover.
Before returning the vehicle, remove all personal belongings and ensure the car is in reasonable condition. Remove license plates, as these are usually tied to the owner. Gather necessary documentation, keys, and maintenance records.
During the handover, you will likely sign a voluntary surrender agreement, formally acknowledging the vehicle’s return. Obtain a dated receipt or confirmation document from the lender, verifying the return date.
Financial and Credit Implications
Voluntary vehicle surrender significantly impacts your credit score, appearing as a negative mark on your credit report for up to seven years from the date of original delinquency. Both voluntary surrender and involuntary repossession indicate a failure to meet loan obligations and can cause a substantial drop in your credit score.
After the vehicle is returned, the lender will sell it to recover a portion of the outstanding loan balance. The sale proceeds are applied to your loan, but often the sale amount is less than what is owed due to depreciation and costs. The remaining amount, including the loan balance, accrued interest, and fees, is known as the deficiency balance.
If a deficiency balance remains, the lender can pursue you for this debt through collection efforts or legal action to obtain a deficiency judgment. A deficiency judgment is a court order obligating you to pay the remaining debt.
If a portion of the debt is forgiven by the lender, this canceled amount could be considered taxable income by the Internal Revenue Service (IRS). If the forgiven debt exceeds $600, the lender is required to report it to you and the IRS on Form 1099-C. Exceptions exist, such as debt discharged in bankruptcy or if you were insolvent.