Voluntary Surrender of a vehicle
In this week’s blog, Consumer Debt Support (CDS) takes a look into how and when a consumer can surrender a vehicle to the bank or his collection agent.
One needs to understand the ramifications and impact of a voluntary surrender or summary default judgement and what it could mean to the consumer and what effect it could have long after the vehicle is sold by the creditor.
Consumers from all walks of life are facing hard financial times in this recession, eg. companies retrenching employees, less employment opportunities, we see an increase on credit extensions and slower job creation, to top this all the increase in living expenses. Individuals finding it difficult to cover all their living expenses and keep debt repayments up to date.
One can understand that consumers are struggling financially and when the bank financed a vehicle and the consumer is finding difficult to pay on time and every month. What happens when the consumer can no longer make the contractual payment agreement? By ignoring the problem and not paying the asset for months at a time can cause bigger problems when the bank enforces his rights by taking his claim against the asset to court.
What can consumers do when they are well aware the debt can’t be paid? Consumer do have options open to them, we cover them here below.
The one good thing to do is to surrender the asset, in this case the car, to the bank. Contact your lender and notify him you can’t pay the debt any longer and you want to surrender the vehicle immediately.
This is very responsible action from the consumer and can have a softer impact on the credit scoring when the asset is sold by the lender. The consumer can arrange with the bank to settle the final end balance and have the account marked paid up when fully settled.
Here at CDS we often hear of consumers that are in denial and desperate to keep the asset for various reasons. Surely one can understand that the bank has a duty to enforce his rights when the debt is not being paid and has the obligation towards his investors to collect the debt, in this case the vehicle purchased on hire (HP) or lease purchase where the vehicle is then used as surety. The bank calls on the surety in the case of the default.
The lender will notify the collection agent on the bank’s panel to attach the vehicle as per the arrangement reached when surrendering the asset. When the consumer ignores the default, it forces the creditor to enforce his rights. The collection agent then has a mandate to either get a payment arrangement or attach the vehicle, and can give the consumer 10 or 20 days to raise the money to bring all the arrears up to date. Once the arrears have been paid up to date, the vehicle will be released back to the consumer.
Should the consumer not be able to meet the outstanding debt obligation in this period of time, the vehicle will be sold on auction.
Consumers must understand the bank has to protect their rights and have the rights to attach the asset. The vehicle loses value and soon the outstanding debt will be way more than the actual value of the vehicle sold on auction. When the creditor obtains the Writt of execution from the High Court and enforce his rights, this may leave the client with a large outstanding debt. The Warrant of Execution is then enforced by a sheriff or the collection agent of the lender. In the event where the consumer has moved or hide the vehicle, the lender will employ a tracking agent and trace the vehicle.
Here at CDS we often hear consumers’ outcry that they did not have to hand the asset to the agent without a summons. If the debt can’t be paid, it is always best to contact the creditor and surrender the asset.
Why is it that so many consumers default on keeping the asset insured? An increasing concern is that consumers are not keeping the asset insured, while the vehicle is not fully paid for. So what happens when the vehicle is written off in a accident? The consumer will owe the debt to the creditor until all the debt is fully settled, in the event of a write off after an accident. Why would a consumer not keep the asset insured? The original contractual agreement states the asset must remain insured until the debt is fully paid. We have first hand experience where consumers in debt review had an accident, and the vehicle was written off. Not having sufficient insurance to cover the outstanding balance of the debt can leave the consumer in a difficult position to settle the outstanding balance after the Insurance company settled the claim and pay out only the value of the vehicle at the time of the write off. If you do not have sufficient insurance cover on your vehicle, and you have an outstanding debt to the Bank it is best to get insurance right away, it is the right thing to do.
Consumers have Four options when they can’t afford the contractual payment of the motor vehicle.
- Surrender the vehicle to the lender/creditor before another month’s payment is not met. The lender can sell the vehicle on auction and recoup most of the outstanding debt, thus leaving the consumer with a small outstanding balance that can be arranged to pay it off.
- The creditor can appoint a collection agent to collect the vehicle by means of Voluntary Surrender when the arrears goes over 90 days. Surrender the rights of the asset back to the lender, and the lender can sell the vehicle on auction. The collections agent can update the consumer’s credit report with the information, add the fees and update the balance. This can affect the consumer’s credit score.
- The creditor has the right to proceed with legal action if the consumer refuses to surrender the asset. It is a High Court default judgment and the costs for the consumer’s account. The sheriff or the bank’s collection agent will enforce the order and attach the asset.
- The other option is to look into restructuring the debt and include the asset into debt review. The debt counsellor will inform the creditor of the debt review and any attachment instructions will be cancelled. This can only be done before the asset is surrendered or attached by Voluntary Surrender. Here at CDS we refer our clients to our brokers Meliorleaf for the best short-term quotations and other beneficial cover while in debt review.
Having a vehicle attached by means of a judgment will do a lot more harm to the credit report in the long run.
Don’t fight for the vehicle knowing it is no longer affordable.
In most of these cases it is better to let go of the vehicle and return it to the creditor before more costs can be added to the outstanding debt.
- Is it always in the consumer’s best interest to raise the funds and settle the arrears on the vehicle that is already so far in arrears?
It is always best to become debt free and to take good care of your credit scoring. Yes, bad things happen to good people, and life-changing events can cause a lot of other problems and spill over into the finances. Always do the right thing, and doing the right thing is not always easy, especially when it comes to your car. If your surrendered your car, you can contact us http://debtcentre.co.za/contact-us/ We can assist with the contact details where you can inquire leasing a vehicle and get back on the road. There is always options no matter how difficult it seems at the time.
It will be in your favour to voluntary surrender the asset back to the lender. You do have options available to you before the debt goes into arrears and the consumer is no longer able to bring the arrears up to date. The National Credit Act protects the consumer that applies for debt review.