Car getting prepped to be towed. akeg's photostream @ F... Car getting prepped to be towed. akeg's photostream @ Flikr©

A growing number of hard-pressed consumers are suffering the ultimate indignity -- the repossession of their car, truck or SUV. The number of new and used vehicle repos increased from about 1 million to more than 1.8 million a year between 1995 and 2009. As a percentage of annual vehicle sales, repossessions have more than doubled, according to CNW Marketing Research. Personal finance experts blame both high unemployment today and an out-of-control culture of consumption, especially since the mid-1990s.

Many buyers threw caution to the wind and bought more expensive cars than they could afford, says Catherine Williams, vice president of financial literacy at the non-profit credit-counseling group Money Management International. “It’s really easy to get stars in your eyes when it comes to buying a car,” she says.

The sharp downturn in 2008 made matters worse. “None of us saw this deep, deep recession coming,” says Williams. “In some cases, you could not be prepared enough.”

Less Drama, Greater Pain

The trend was especially clear in Las Vegas, says Houston Crosta, publisher of the website www.avoidtherepoman.com. The former repo man says he has seen fortunes of both the formerly well-off and regular folks plummet in his hometown after years of riding high. “Everybody is image conscious in Vegas,” he says. “People don’t buy a Hyundai. They buy a Mercedes.”

The repos don’t usually play out with the heart-thumping drama of “Operation Repo,” with burly repo teams squaring off against outraged car owners over a BMW or Hummer in full public view, not to mention in front of TV cameras, he says. Most end with a whimper, out of the public glare. The vehicles quietly disappear from a parking spot outside the owner’s home or place of business. Or the vehicles are unceremoniously towed away after repo agents talk the owners into turning over their keys.

Unfortunately, that’s not the end of the story. The owner is still liable for financing costs after the repossession. The lending institution will auction the vehicle off at a low price, and the consumer ends up owing the difference between the price at auction and the balance of the loan.

As consumers’ financial problems mount, their options for avoiding a repo start to dwindle. For example, trading down from a Lexus to a Ford Fiesta usually isn’t an option, Williams says. The reason is that so many owners are “upside-down” on their car loan. That means they might have to come up with thousands of dollars to pay off the old car first so they can emerge from the transaction cleanly. It is a rare candidate for repossession who can do that.

What To Do?

The threat of a repo is a test of consumers’ coolness under fire. Many can miss out on opportunities to prevent the loss of their vehicle if they don’t take the time to calmly assess their situation, experts say. Some could keep their cars if they communicated with their lender at the first sign of financial difficulties. That, in turn, could prevent the continued downward spiral of their finances.

Williams says owners can offer to defer a current payment to the end of the contract perhaps a year or more down the road. “They will probably agree to it if you are regular or on time in all your payments,” she says. “It may be a one-time pass.”

Other options would be to ask the lender to set the payment date to coincide with the owner’s payday or permit interest-only payments. “They don’t want to know all your gory details,” Williams says. “They want to know what you can do realistically and make everything work for them. Make sure that you do not overpromise anything. Unlike a credit card, the finance company really does have something it can take from you.”

At this point, the owner has other options, too -- thanks partly to the overall beating the U.S. economy has taken since 2008. Lenders, it turns out, are more sympathetic than usual.

“Over the past 24 months, we have seen lenders take extraordinary measures. They have taken write-downs and made interest changes,” says Les McCook, executive director of the American Recovery Association, a trade group for rep firms. “They have rewritten the loans to get people into a zone where they can be comfortable with their loss of income.”

A Chapter 13 bankruptcy may be an option, says Koury Hicks, a bankruptcy attorney in Raleigh, N.C. This allows individuals to reorganize their finances, including a car loan. By getting relief from credit card and other types of debt, consumers may have more resources to handle the cost of essentials like their home and car.

In fact, they may be able to refinance their car loan at a special interest rate used in bankruptcies, currently just 5 percent. “It allows the consumer to put together an affordable payment plan that is often on better terms than they have with the vehicle lender,” Hicks says.

In a Chapter 13 reorganization, however, the individual needs to have at least some income. In many cases, a spouse’s earnings may be enough to fund it. The point is that there has to be enough money available to at least pay the vehicles owner’s new, lower obligations, he says.

As repossession looms, Williams says an owner could even ask a friend or relative to take over the car with new financing. “Maybe there is somebody who likes your car and wants or needs another car,” she says. “You aren’t going to get any cash out of it but you will get you out from under your loan.”

But she absolutely warns against heading into a used car lot and asking the staff to find a substitute for you as owner. “Stick with family and friends,” she says. “What the used car lots do is charge you a fee, and the substitute never goes out and gets a loan. So now you have someone you have never seen before driving your car. This is fraught with problems.”

Don’t Mess With The Repo Man

If an owner is two to three months behind, chances are the lender is beginning to discuss repossession, according to Williams. In that case, consumers have to decide whether they can actually afford to keep their vehicle over the next 12 months. If all else fails, they should do themselves a favor and turn in their vehicles voluntarily, McCook and Williams agree.

“You will save the extra fees of repossession, and you will salvage your personal possessions,” Williams says.

A voluntary return will look better on the owner’s record, too. In future years, lenders will look favorably on the way borrowers handled themselves during their time of financial crisis, McCook says. Otherwise the high-stakes poker game between the lender, the repo company and the owner can get out of hand. “Don’t try to be creative and take the plates off your vehicle or hide it in your mother-in-law’s garage,” Williams says.

That game is heavily stacked against the consumer, says Crosta. Repo specialists use “skip tracers,” experts at identifying owners’ addresses or places of employment. Their skills can easily target relatives of the owner, too. Repo firms rival police departments in the amount of presumably private information they have at their disposal, he says.

“They can find you, whoever you are, wherever you are,” says Crosta, who says he has tracked down and repossessed the vehicles of local celebrities from gated communities in Las Vegas.

“The last thing you want to do is be tracked down somewhere at an unfortunate place and time, not of your choosing,” says McCook. “This is going to cause you embarrassment -- and still more problems.”

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