How to resolve an auto loan charge-off when repossession did not occur?

car loan charge-off but no repossession

car loan charge-off but no repossessionQuestion: Here’s my situation. I had a vehicle loan with Wells Fargo in 2006 for $15,000.  I got deployed and gave the car to my son.

I couldn’t keep the payments up and he put the car in his garage. Now I’m back in the USA and have a charge off for $27,000.00 and a 2003 Car.

I don’t know how to proceed now. This is the only negative on my credit report.

Answer: Your situation is not a simple negative on your credit report. You have a legal matter. I am not an attorney; therefore, I have limited advice I can offer. The reason I say you need an attorney is that repossession laws differ from state to state. A consumer law attorney in your state would be better able to advise you.

But here’s what I can offer. Because the car was “in his garage”, Wells Fargo was apparently unable to follow the repossession process. Generally, a bank can repossess your car even if you are one day late, without prior notice.

However, you are entitled reinstate the loan contract by paying the past due amount along with any repossession and storage costs. If you are unable to reinstate the car, it will be sold at auction. The proceeds brought in from the sale are applied to the loan balance. If the money does not cover the loan balance, you will owe any remaining balance.

Because auctions typically sale cars at wholesale prices, there is almost always a large portion left over which is passed on to you. The portion left is referred to as a “deficiency balance.” The deficiency balance can be charged-off, sent to a collection agency; or, the bank may choose to file a lawsuit against you.

I have given you a brief summary of the repossession process to let you know the normal ways of disputing negative items on your credit report may not suffice in this situation.

Three ways to remove a charge-off

Dispute with Credit Bureaus. Dispute the negative listing with each credit bureau showing the listing. You can read “How to Dispute a Charge-off” to get different dispute strategies specifically pertaining to a charge-off.

Dispute directly with Wells Fargo. Dispute directly with the furnisher of information if, after you disputed with the credit bureaus, the negative listing was verified and remains. In July 2010, under the FACT Act, the furnisher of information (Wells Fargo) must respond to credit disputes just like the credit bureaus.

Read more about disputing directly with the furnisher of information also known as the 623 Method of Disputes. Once you dispute directly with the furnisher of information they have 30 days to verify the dispute or they must delete the negative listing.

Keep in mind if you dispute the charge-off with the credit bureaus or directly with furnisher of information it may awake the bank and they could come after you. Be prepared for this to occur once you start disputing.

But even if you were able to get rid of the negative, it would probably only be for a brief time. The probability of the bank letting $27,000 go uncollected is slim to none.

Negotiate with Wells Fargo. Perhaps you can negotiate a settlement; or, a consumer law attorney may be able to negotiate a settlement for a lesser amount. They can look at the deficiency balance and determine if the amount of $27,000 is correct. Many states have laws which dictate how much a bank can charge in the repossession process.

You or an attorney may be able to negotiate a better credit rating and have the charge-off deleted or at least changed to “Paid as agreed” or “Settled”.

All of this starts with the bank. You must contact the bank or have an attorney contact the bank and proceed from there. Whatever negotiations you make must be done in writing, which is your proof and confirmation. If you do not have an attorney, try naca.net. They have a directory of consumer law attorneys listed by state. Good luck to you.

 

2 thoughts on “How to resolve an auto loan charge-off when repossession did not occur?”

  1. In 2018, I lease a 2018 hybrid plug-in car, the lease agreement 3 years and 30 miles, by the end of the three years I would pay 25,000+. I was paying $649.36 monthly. i drove the car for 16 months and made a payment of $10,389.76. On 01/31/2020 the lease car was taken. The car was appraised for $18,000. 00
    I keep going to the dealer to charge it every evening. However the sale man who lease me the and a manager told me they could take me out of the lease car. and put me into a new finance car. I agreed took the offer the transaction took 1 1/2 day to go through.
    I was qualified for a pay off loan for the lease car. which i have to repay
    $28,000.00 plus anther $10,000 and the new car CRV which is on sale
    was sold to me at the original price. my total for bother cars is over $50,000+
    Now my question is why was the lease car taken from me if it was paid off
    and i have to repay the paid off loan. they are going to sell that car to someone else if the car has not already sold.
    In my eyes i see this as fraud.
    Please advised me

    1. When you chose to finance a new car with a balance remaining on your current leased car, the dealer rolled your lease balance into the purchase of the new vehicle which is not fraud.

      Whenever you trade-in a leased car, the dealer will pay off the lease and the cost of the payoff goes against the trade-in value of your leased vehicle.

      In your matter, the trade-out of a lease early was unfortunately a very expensive option. There was a big difference between the current value of the leased vehicle and the lease value at the time of early termination. That negative equity (deficiency balance) amounted to thousands of dollars which was tacked on to your new car purchase.

      In the car industry, that’s called being upside down on your car. Car dealers love nothing more than for previous customers to come back and purchase a new vehicle with them, even when the customer’s current vehicle has a lease on it, or even if the customer owes more on the car than it’s worth. Dealerships have a neat workaround to deal with that and that is to stick you with the old balance owed on your new purchase balance.

      You don’t get to keep both vehicles. You traded one for another but because the leased vehicle still had money owed (deficiency balance), they rolled that balance into the new car purchase.

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