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Can creditors still collect on repos and charge offs?

We sometimes have clients who are dealing with bill collectors even though they have had property repossessed (such as a car or a boat) and the creditors are still trying to collect on the debt. The lender may also have “charged off” the loan, but the collection calls still come. For a consumer dealing with debt issues, this can be a confusing and frustrating experience.

As a matter of law, lenders still have the ability to collect on an outstanding debt, even if they have taken back the collateral (i.e. repossessed the car or boat) that the loan was based on. In many instances, there still may be an amount left on the loan that still needs to be paid, even though the collateral has been returned to satisfy the outstanding amount. Chances are that the interest, late fees and other penalties assessed make the loan much more costly than the property. 

Also, a loan being “charged off” does not mean that it has been extinguished. A lender must consider a loan (whether or not it is being paid) an asset for accounting purposes. If it is charged off, it is likely sold or given to another entity, who obtains the legal right to collect on the debt. In either scenario, a debt is still valid until it is either paid, forgiven or discharged in bankruptcy.

For consumers who are struggling with this type of debt, it is helpful to consult a bankruptcy attorney who can verify the proper amounts owed and who actually owns the loan.

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