I once signed a loan to help a friend get a motorcycle to ride her kids to daycare, get herself to work and school. Unfortunately, it became a nightmare.
Nearly 9 months after signing the loan, I was notified of late payment. I contacted my friend, and she promised to take care of it. The following month, I was notified again. I called her again, and she requested their phone number to take fix the issues.
A month went by, and I received no notifications, so I concluded that she continued the payment as promised. I received a letter 3 days after from the insurance company that the coverage has been canceled for non-payment. I tried to contact her, but she would not answer her phone or return the calls.
I suspected that she requested the callers’ phone number to give them the motorcycle location for repossession.
More than 3 months later, I was notified that I was responsible for the difference between the loan and the amount received from selling the motorcycle. Then it occurred to me that, indeed, the bike was repossessed, and I owed $5,500. Apparently, my friend attempted to get out of the motorcycle loan at my expense; sad.
What is repo motorcycle?
If you take out a loan to finance a motorcycle but default on the terms, the lender can repossess or take back the motorcycle. The motorcycle becomes a repo motorcycle.
Read: Titling a motorcycle frame
Can a Motorcycle be Repossessed?
Yes, a motorcycle can be repossessed. When the lender repossesses your motorcycle, they sell it at auction. Moreover, you are responsible for the difference between what you owe and the amount from selling the motorcycle, including the service and collection fees.
Assuming you owe $5,500 on loan and decide to surrender the motorcycle to your lender (alongside the title, registration, and key), it is known as asset surrender.
The lender will prepare default paperwork and assign the motorcycle to auction. Within 2 months, the motorcycle is in the auction, and you already owe two months of lender interest and auction fees. So, your debt rises to about $6,500, depending on the monthly interest rate and auction fees.
When the motorbike is auctioned, say at $1,500, you now owe $5,000 plus interest. Since the auction value does not cover the payment, your lender notifies you to pay off the debt within 10-30 days.
If you fail to pay off the loan, the charges and interests continue to accrue. The lender sells the debt to a collection agency that includes their fees to the amount of your balance. Now, the payment increases to $8,000 instead of the $5,500 payable in installment, had the lender not repossess the motorcycle.
Each passing month, the collection agency calls you, and your owed amount is increasing. The collection agency eventually files a suit, and some of your paychecks are passed to them to complete your debt.
If you can’t afford your bills, you lose some belongings. It can make you bankrupt with no possibility of credit for 7-10 years.
Read: Flipping motorcycles for profit
What Happens When a Motorcycle is Repossessed?
When a motorcycle is repossessed, it goes either to the lender, third-party, or recovery company’s storage lot. Typically, the lender contacts you to get the motorcycle out of repossession. Suppose you don’t, the lender ships it to the auction to sell it and recover the loan amount.
Meanwhile, it is not a crime to default on a motorcycle loan, but it is not acceptable socially. Nevertheless, it not entirely unacceptable not to pay off debts. Besides, bankruptcy laws are established to offer you options for a fresh start after defaulting on a loan.
Unfortunately, however, you can’t seek protection from creditors. The law does not also protect you make no effort to pay off your debt.
Meanwhile, below is what happens when your motorcycle is repossessed for defaulting:
Lien on Other Property
In many states, except for mortgage foreclosure, your lender can place a deficiency lien on your assets.
So, the remaining balance, after recovered asset proceeds are deducted from the loan principal, may be used as payment reservation on your property. You cannot also sell an asset that has a lien on it.
Repossession
A typical lender always attempts to recover their asset. When you default the term, a repo man visits to get the motorcycle to the lender.
Your Credit is Hurt
Motorcycle repossession hurts your credit, and you may not get loan approval.
Employers Check Credit
Employers run background checks that may include credit checking periodically. In essence, defaulting can cost you a job opportunity, and you may never find out about it.
Higher Insurance Rates
Repossessed motorcycles affect insurance rates through poor credit reports. Since the insurance company sees you as a high-risk rider, they increase their rate. Note that you won’t be considered high-risk by the insurance permanently.
How Bad Does a Motorcycle Repo Hurt Your Credit?
When the bank takes your motorcycle, it is reported as a repossession, reflecting on your credit report, which is negative. A voluntary repossession, however, may hurt your credit slightly.
Nevertheless, any form of repossession is a negative mark on your credit profile and will lower your credit rating significantly.
However, suppose your credit rating is at 590 because of financial challenges; a motorcycle repossession may not affect your credit rating enormously. If your credit score is 800, the rating drops significantly after the lender repossesses your motorcycle.
If the credit card debts charged off are already six years old, it would have ended their negative effect in a year. Derogatory credit listings wane off after 7 years from the charge-off date. With your current motorcycle repossession, it affects your improving credit card debts, and it becomes difficult to get credit priced reasonably for some years.
What Are the Rules of Motorcycle Repossession
Although motorcycle can be repossessed, a defaulter is protected by the law to an extent.
Below are basic rules of motorcycle repossession:
Repossession Notices
After your motorcycle is repossessed, the lender must serve a notice stating the terms to repossess the motorcycle. The notice will also include if the motorcycle has been sold, the selling price, and the balance owed. In many states, a lender can repossess your motorcycle without notice. They can come into your property or seize the motorcycle anywhere.
Threat
The repo man, typically a third-party invited by your lender, must not issue threats. Although they can rightful repossess the motorcycle, they can apply physical force. Nevertheless, they can enter your property without permission but must not break into a locked garage or the storage facility.
No Threat from the Police
Can a motorcycle repo man bring the police? A repo man may not request police assistance to repossess a motorcycle; motorcycle repossession is a private affair. The repo man must also not threaten to call the police as it may violate the Fair Debt Collection Practices Act.
In some states, however, repossession agents can inform the police before repossessing your motorcycle.
What happens when you hide a repossession motorcycle?
If the payments are long overdue and you are hiding a repossession motorcycle from the lender, it is a felony in most cases. Meanwhile, you might be interested in how motorcycles are stolen! When you hide a repo motorcycle and the lender repossesses it eventually, it denies you the right to reinstate the contract.
However, the lender will file a lawsuit against you and a court order to hand over the motorcycle if they can’t repossess it. When you don’t comply, you violate the order, and the court holds you in contempt, which may lead to arrest.
How to Prevent Motorcycle Repossession
To prevent motorcycle repossession, you can sell it at the value equivalent or more than the balance owed.
You can also surrender the motorcycle voluntarily. Although it affects your credit rating but not as hard as the lender’s repossession.
Meanwhile, if your motorcycle is already repossessed, consider filing a lawsuit in civil court or small claims court. Depending on the amount of the note, your jurisdiction’s guideline will determine whether the case is suitable for civil court or small claims court.
The lender may also seek judgement. If the judge determines extenuating circumstances, the judgment might become worse than paying off the debt. For instance, if the judge finds bad faith or fraudulent dealings, the claimant could be awarded more damages.
Final Thoughts
After your motorcycle is repossessed, acknowledge your mistakes and accept the wrong decision.
Understand that mistakes are part of human nature and hit us every time.
Your first step is to pay where interests are adding up. If you have no money, seek assistance from friends and other community programs.
With time, you can rebuild everything through hard work and more excellent decisions.
When next you’re financing a motorcycle, be decisive because you may not return the motorcycle after buying it.
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