How Long Can a Repossession Stay on Your Credit?

Original Delinquency Date

Repossessions can stay on a credit report for 7 years from the original delinquency date. The original delinquency date is the exact date of the first missed payment that eventually led to the repossession. For example, say you are behind several months of paying your car loan. The first missed payment was June 1st. If the missed payments continue and lead to a car repossession, the 7-year impact on your credit report begins with the date of June 1st. 

The date in which the car was sold or auctioned off has no impact on the 7-year rule for your credit report. The only date that impacts the credit report in terms of a specific repossession is the original delinquency date. 

What Is a Repossession on Your Credit Report?

A repossession on your credit report marks that a lender has seized your assets, like a car or a boat, to use as collateral to pay back your loan when missed payments occur. There are two types of repossessions: voluntary and involuntary repossession. When a repossession impacts your credit report, you could see your credit score lowered by over 100 points. 

Does a Repossession Hurt Your Credit Score?

A repossession can result in a “derogatory mark” on your credit report. This stays on your credit report for 7 years. Repossessions in most cases will significantly lower your credit score, often by over 100 points. You could face the impact of a lowered credit score in several ways in the future. For example, if you want to apply for a new credit card with a lower interest rate than the one you currently have, a lower credit score could lead to a rejection. If you want to apply for a car loan when buying a new car in the future, you could face higher interest rates on the loan. 

Repossession can be a stressful circumstance in itself even before the impact to your credit. Avoiding repossession can save you from financial headaches that impact your finances for seven years. Contact an attorney if you are facing repossession to determine whether there is a change to protect your assets, before it impacts your credit. 

Voluntary vs. Involuntary Repossession

Voluntary occurs when a lender willingly gives up their vehicle or property because they cannot afford to continue making payments on it. For example, if you bought a boat using a loan but then can no longer make payments due to losing your job, you can voluntarily give it up. 

You can still receive a derogatory mark for seven years on your credit report for a voluntary repossession, but your score will not lower as much as an involuntary repossession in most cases. In addition, voluntary repossession does not mean you are entirely free from your loan. If the vehicle is sold off for less than what the rest of the loan amount is, the lender will have to pay the difference. 

Involuntary repossession is when a lender takes an asset, such as a vehicle or property, to pay off the outstanding debt. If you are behind on car payments, for example, a lender will send a recovery agent to seize the vehicle for auction. Involuntary repossession impacts credit more than voluntary repossession. In addition, some debtors will have to pay fees incurred by the lender when seizing the asset, such as a towing fee for taking a car. 

Deficiency Balance and Its Impact on Credit

After an asset is repossessed, it is sold off, typically by auction, to pay outstanding debt. However, this does not always cover the full cost left on a loan. When an asset is sold for less than the cost of the rest of a loan, the borrower will have to pay the deficiency balance. 

For example, say a borrower borrowed a $20,000 car loan for a new car. They paid off $5,000 before being unable to pay off the rest. The lender repossesses the car and sells it off for $10,000. The borrower would still owe a deficiency balance of $5,000. 

A deficiency balance in itself indicates unpaid debt, leading to a negative impact on your credit score. As with the repossession, this can stay on your credit report for 7 years.  Note that if the creditor secured a judgment against you, the judgment will forever make you liable for the debt, absent a bankruptcy.  

How to Rebuild Credit After a Repossession

Rebuilding credit after a repossession can be challenging, but it’s not impossible. While a repossession stays on a credit report for 7 years, you can still work on rebuilding credit long before the 7 years is up. 

Here are some tips for helping to rebuild credit after a repossession: 

• Prioritize paying back debt that is still owed
• If you cannot pay back your debt that is still owed, file for bankruptcy
• Determine whether you can pay off debt through a payment plan
• Reduce excess spending to help put more money towards lowering debt

The best way to protect your credit is through avoiding repossession in the first place. If you are facing repossession, filing for bankruptcy helps put an automatic stay in place, giving you more time to protect your assets. But, in the event of repossession, it is not the end of the world. Contact a debt attorney to weigh your options and assess the best course of action to rebalance your finances.