Secured loans and credit reporting

I have a substantial amount of debt riding on my shoulders and it is really getting extremely hard for us (my wife and I).

I have several credit/store cards that have a pretty high amount on them..but I also have some pretty high secured debts out there as well.

Aside from my house, I have two car payments, a motorcycle payment, and a loan I took out for medical bills that was secured by various things I have at home (lawn mower, stereos, tv, etc...)

I guess my question is surrounding the motorcycle for the moment.

If I were to just allow the funding company to come and take back the motorcycle, how will that effect my credit report? I mean, I know it will show up as a negative, but how detrimental could it be?

I know that in Real Estate, they have a situatiob referenced as Deed in Lieu...is there such a thing for other loans as well? Like maybe a title in Lieu? I know that a Deed in Lieu looks better than a foreclosure on the credit report.

I am never late on the car payments or the house payment, but the cost of living has risen so greatly over the last couple of years, it has made it extremely difficult for a family of 5 to survive with out some sort of sacrifice. Throw in the fact that we have all had some kind of an illness of some sort..we are strapped for cash at the moment.

I design houses as a side line job, but the building indistry has fell off severely and I have no current projects under way. I am already looking in to taking a second job (on top of my primary job and house design) to make ends meet and try to fight my way out of debt.

The creditor will put repossession on your credit report and that is going to affect your credit potential. It will show up as a negative item and future lenders will be hesitant in giving you new credit. They might think you as a risk to their finance. Even worse, this lender might sue you to recover the balance. Or, they will auction the motorcycle to recover the amount. The complete amount won't be recovered from the auction, so they will continue their collections for the remaining balance. Your best bet will be to call the creditor and work out some partial repayments. They want to have their money back so they might be ready to work on your terms.

Bony is right about them putting the repo on your credit report. This would lower your credit score greatly. Then, I think they would auction the bike off and sue you for the balance, and they could file a judgement against you for the difference, and possibly garnish your wages. Maybe you could sell the bike outright and get the loan paid off that way. I agree with Bony that you should call them and work out some payments with them. I am sorry for your situation. The higher cost of living seems to have taken a toll on all of us recently.

The cost of living is always going to rise in the coming times. In order to survive and have a debt free living, we have to be very calculative in our expenses. Only if there is decent income, we can think about a few luxuries but the maximum priority should be given to the necessities first.

I agree Bony. The higher the cost of living gets, the less luxuries we can afford. Something is wrong with that picture LOL!!!

LOL!! That day isn't far enough when a bottle of beer will cost fortunes.

Thanks ya'll.

I knew it would show up as a reposession, but I was unaware of the possibility of them sueing me for the balance or the remainder. I really appreciate you making me aware of that.

When I bought the bike, we were doing OK and could afford the extra payment. Then the cost of living started going up and I had to take out a loan to pay off some medical bills that we had accumulated - ones we didn't even know we had. This was before I knew about this site and had not had a chance to explore the options and get credit advice on any of it.

The medical bills were over 2 years old when we started receiving collection notices. The loan amount was for $5000 with repayment in 4 years at $267/month.
This loan was secured through a local financing company with household items being used as collateral (lawn mowers, tvs and such).

Unfortunately for me, most of the credit items I have that are troubling me are all secured items.

I think I will call the motorcycle finance company and see if we can renegotiate or possibly even defer a payment or two until I can regain some room on my credit files.

Currenlty, I work for a major world wide company and I make decent money. I also design homes from my home for extra money. Unfortunately with the real estate market like it is, nobody is planning on building and work is getting hard to come by. So I am looking at getting a second job at the local Home Depot/Wal-Mart/grocery store.

I think with the extra money I can get from a second job, I could start paying off a few of my bills and then with the few house plans I get in, I can start paying down some of the other bills in large lump sum payments.

Per the comparables in my area, my house is maxed out. My house is actually a $300,000 home, but comparables only bring it to about $250,000. The house is maxed out that way, so getting the house refinanced is not an option either.

My house will be on the market soon (was planned before any of this started) and I know that once the house sells and I start bnuilding my next home, I will be fine because i will be able to pay off several of my creditors as I build my house....it is just getting to that point with the added knowledge of the real estate market being extremely slow rght now.

So, by that being mentioned, bankruptcy is definately not an option...plus I am not a firm believer in that. I "borrowed" the money for the things I have, so I am entitled to pay it back..as long as the loans are fair and reasonable.

I will be OK eventually...I ust have to suck it up and power through the hard times right now....

Thanks to everyone for the help and advice

It shows up on the credit report as "reposession" when they come and take it by force. If you bring the motorcycle to the finance company and hand it over to them it would be a "voluntary surrender" and would be reported to the bureaus as such.

While this still shows up derogatory on the credit report, it at least shows future lenders that you recognized your inability to meet that obligation and you gave it up for the best interest of both parties. In other words, it shows that the lender didn't have to come and take it by force.

Either way, repo or voluntary, the finance co will sell the motorcycle and apply whatever proceeds they get from the sale against your balance. You are still responsible for any remaining balance, and if you don't make arrangements to settle the account, they can eventually sue you over it. On a side note, at least when you give up the car voluntarily, they won't charge you $300 to send a tow truck out.

You sound like you have somewhat of a plan for the future, and that is a good start. The finance company may be able to work out an extension agreement to get you to pay just the interest for a few months until you can catch up on other things.

I voluntarily turned in a leased vehicle that I had, and they listed that on my credit report as "repossession." I don't know if I could have had it changed, I never tried. I didn't know very much about credit back then. I voluntarily told the finance company (FMC) that I was turning it in and took it to the local dealership and gave them the keys. There was no taking it by force.

It does sound like you have your act together and calling the finance co. about the motorcycle is the right thing to do. I wish I had it as together as you do. Keep us posted and let us know if you need more help. Stick around, there is a lot to learn here!

These are the different status codes that can be reported to the bureaus, involving security:

89: Deed in lieu/defaulted mortgage.
94: Foreclosure/sold collateral to settle default.
95: Voluntary surrender.
96: Merchandise was repossessed by credit grantor.
97: Charge-off.

Wow, thanks debtcruncher, I wish that I had known that back then. It most definitely was not repossession. And you know what else, I filed it in my bankruptcy too and 4 years later I am still trying to get that corrected on my credit report because 2 of the bureaus still have it listed as an open account!!

A simple dispute through the bureaus, I would think will do the trick there. The company may not be doing it on purpose.

My company has been using the same software since about 1991. We went through a big upgrade in 2000, and somehow our upgrade fudged all our old closed accounts and reported them to the bureaus as still being open. One by one, as my customers dispute them, I correct the account status.

Wow no wonder you know so much. I am impressed! I wish I had disputed this a long time ago. It probably would have made a difference in my credit score, wouldn't it?

Debt Cruncher, sorry to dig up an old thread, but can you expand on this a little? For example, would both a home foreclosure and a short sale fit under 94: Foreclosure/sold collateral to settle default?

It would seem that a short sale should have a lower number, albeit minutely smaller, than a foreclosure. Otherwise, what is the incentive to a homeowner to short sell the home versus just letting it foreclose?

No they're not really the same. But it depends at what point in time the short sale took place. Did they initiate a foreclosure prior to the short sale? IE maybe they never actully took posession of the house, but did they file proceedings with the court?

A short sale without any sort of foreclosure action should be reported as a 13 (closed account) with MOP 1-6, depending how many days past-due the account was at the time of sale. The tradeline would most likely have a special comment; either: AU - Account Paid In Full For Less Than Full Balance, I - Election of Remedy, or S - Special Handling. If a foreclosure was Initiated prior to the short-sale, it still be reported as above, but with special comment BO - Foreclosure Proceedings Started.

The incentive to the homeowner is not necessarily for better credit. Rather if you let your home foreclose then there are losts of attorney fees and court costs, they sell the home for probably less than you owe, and then they sue you for the balance. In a short sale, they usually agree to forgive whatever balance is left after the sale, without suing you. So there's the incentive not to let it foreclose.

Okay, well, let's talk specifics (i.e. what I perceive my situation to be), as that might help clear up some confusion on my part.

My senior note has initiated foreclosure proceedings, probably a foreclosure sale in October. If I were to be successful in a short-sale, then you think that it would be reported as a closed account (13) with MOP (6) {what is this, missed payments? I'm over 180+ PD...], and a special comment of BO-Foreclosure Proceedings Started.

Isn't that significantly better than a 94: foreclosure?

As far as the lender suing me. This is a purchase money mortgage note (never refinanced), and I should be protected there under the California anti-deficiency laws. I'm pretty sure they can't come after me at all for the balance left. My HELOC loan is another story, and I'm trying to settle with them separately, before figuring out what to do with my home and senior lender.