How to keep the car when an auto loan is charged off
Your car loan is charged off when you have been delinquent on your account for 180 days. The lender writes off this debt as a loss, as they realize that the debt won't be paid. An auto loan charge-off is a negative mark on your credit report and it hurts your credit score. A loan charge-off does not mean that the loan has been forgiven, and you are still obligated to pay the debt. The interest and late payments will continue to accrue. Generally a charged off debt is handed over to a collection agency.
Can you keep the car after charge-off?
You can keep your car after the charge-off only if you pay off the debt. The lender won't release the lien on the car until the loan is repaid. The car can be repossessed if you do not pay off the debt. Even if the lender does not seize the car, you won't be able to sell it or refinance it. Moreover, you are still liable to pay off the debt even though you have lost your car.
However, repossession laws differ according to the state you live in. Thus, you need to know your state law regarding car repossession. Some states allow the lender to seize your car without notice at any time after you fail to make the payments on your car loan. But, most of the states have a breach of peace regulations on car repossession. If the individuals repossessing your car commit a breach of the peace while seizing your car, your lender may have to pay a penalty and the repossession may be temporarily halted.
How to handle an auto loan charge-off
If you want to keep your car and remove the charge-off from your credit report, you will have to negotiate a payment plan with your lender. Make sure you get the payment agreement in writing. Once you pay off the debt, you may get the car back. As for the charge-off, you will have to negotiate a Pay for delete Agreement (PFD) with your lender to remove the charge-off from your credit report. A charge-off will be considered a negative listing on your credit report, which will cause creditors and lenders to deny you credit. Therefore, it is better to try and remove the charge-off with a PFD if the lender will agree.
The best way to prevent your car from being repossessed is to repay the loan. There are several options, like a loan modification agreement, available to consumers who wish to keep their vehicles.