Bankruptcy Law: Repossession Vs. Charge Off

If you are undergoing bankruptcy, you may hear the terms “charge off” and “repossession” thrown around quite a bit. These are two quite different ways that debts can be handled. It’s important to be familiar with the implications of each.


Sometimes when you take out a loan, you put up collateral, such as your car. You agree that if you do not repay your loan, the lender can take possession of your car, sell it, and use the money from the sale to go towards the total amount of money that you owe them. By signing the contract, you agree to the creation of a “lien,” which is the lender’s right to take possession of a property until the debt is repaid. 

In some cases, you can get the car (or whatever other collateral is repossessed) back by quickly paying back your past-due debt, as well as whatever amount it cost the lender to repossess your property. This is referred to as reinstating the loan.

Bankruptcy makes getting your collateral back and reinstating the loan even more attainable by allowing you three to five years to repay your debt, on a strict repayment plan schedule.

Charge Off

If a debt is “charged off” it means that the lender passed the debt along to a collection agency. The debt still exists, you simply need to pay the collection agency rather than the original lender. In some cases the collection agency is collecting the money on behalf of the original lender and in other cases they have actually purchased your debt from the original lender and are collecting for their own benefit.

The way a charge off will be handled during a bankruptcy depends on whether it is for a secured (with collateral) or unsecured (without collateral) loan, and whether you are filing for Chapter 13 or Chapter 7 bankruptcy.

Knowledgeable Guidance During Bankruptcy

Understanding how all of your debts are handled, who you owe money to, who you don’t, and how you can protect your property can be a bit overwhelming. If you are looking for debt relief help in Michigan, the attorneys at Maxwell Dunn PLC are eager to offer you legal advocacy and counseling services. Whether you are certain you need to file for bankruptcy or looking for other options, we can help. Contact us at (248) 936-6390 to find out what we can do for you.