California Voluntary Car Repossession: What to Know

If you can’t make your car payments, what are your options? In California, if you don’t keep up with your loan, your lender may repossess your car—often without advance notice once you’re in default. However, you can also choose to surrender the car to the lender (often called a “voluntary repossession” or “voluntary surrender”). This article reflects California law and common credit-reporting practices as of January 2026.

Car Loan Basics

When you take out a loan to buy a car, you give the bank a “security interest.” That means the bank has the right to take the car if you don’t pay back the loan. The bank will then sell that repossessed car and apply the proceeds against your loan. Most of the time, the car will sell for less than you owe and you’ll still be on the hook for the difference. That’s called a deficiency. You’ll also have to cover the costs of the repo agent, the storage of your car between the repo and the auction, and other administrative costs.

What Happens if you Surrender your Car?

A voluntary repossession isn’t really all that different from a regular repossession. Instead of waiting for a repo agent to come and pick up your car, you simply give it up yourself. The bank will then sell it at auction. They’ll take the amount they got at auction and subtract the cost of storage, running the auction, and other administrative fees. Those extra costs can run into the thousands of dollars. What’s leftover after those costs are covered is called your “net.” That amount gets applied toward paying back your loan. If there’s a deficiency, you may still be responsible for it, and the account may be sent to collections—especially if the lender followed required notice and sale rules (for example, California generally requires at least 15 days’ written notice of intent to dispose of a repossessed or surrendered vehicle).

If the collection agents can’t convince you to pay, they’ll sue you for collection. You may also have to pay court fees and potentially attorney’s fees. If they win that lawsuit, they can ask the court for wage garnishment to pay off the debt (in California, wage garnishment is capped and is generally the lesser of 20% of your disposable earnings or 40% of the amount above the applicable minimum-wage threshold).

This process will have a serious impact on your credit report—voluntary surrender is typically reported similarly to a repossession and can remain on your credit reports for up to seven years from the first missed payment that led to the derogatory status. Wage garnishment and judgment debt also negatively impact your score.

Voluntary vs. Involuntary: Is Voluntary Repossession a Good Idea?

The name makes it sound less severe, but a voluntary repossession is essentially the same as an involuntary one as far as your finances go. You’ll still have to pay for the costs of the auction. You may still face a deficiency, a collection lawsuit, and wage garnishment. Worse, repossessed cars frequently sell for far less than they’re worth at auction. That leaves you with even more of a deficiency than you should have based on the car’s value. The real difference is that coordinating a voluntary surrender can sometimes reduce certain repossession-related fees, but you may still be charged contract-permitted costs such as transport, storage, and sale expenses.

Alternatives to Voluntary Repossession

Long story short, repossession is an expensive and inconvenient way of getting out of your car loan, voluntary or not. If you can’t make your payments, you’re typically better off selling the car yourself – you’ll usually get more for it. You do have to pay off your loan in order to sell the car, so that may require borrowing enough money from friends and family to cover the rest of your loan and get the car sold.

If you can’t find a way to sell the car, reach out to your lender to ask about your options. If you’re dealing with a temporary financial issue, they may be willing to work with you to help you keep your car.

If you can’t adjust your loan or sell the car, then you can work with your bank to coordinate the voluntary repossession process. That may help you minimize the storage and administrative fees and get the most out of the auction. And, while a voluntary repossession stays on your credit report just as long as an involuntary one, some lenders may view it more positively.

You may even be able to negotiate with your bank to accept the car as payment in full of the loan so you don’t have to worry about a deficiency. However, canceled debt can be taxable in some cases, and lenders may issue a Form 1099‑C. Important exclusions may apply, including bankruptcy and insolvency–just make sure you are aware of any tax consequences before you make a decision.

An expert tip from Erik

There’s also another alternative: bankruptcy. It will stop any collection actions and give you the chance to work out your finances – you may even be able to keep your car. Bankruptcy can also eliminate a deficiency judgment. Whether you keep your car or not, bankruptcy will wipe out your liability for any deficiency if the car is later repossessed and sold for less than you owe. Remember that bankruptcy will affect all of your finances, not just your car loan, so you’ll need to speak to an experienced bankruptcy attorney to determine whether it’s a good option for you.

We Can Help

Maybe you had a serious illness. Maybe you lost your job or had your hours cut back. There are plenty of reasons you might fall behind on your auto loan, but it’s always frustrating and upsetting. The good news is that you have options. Don’t let a lender pressure you into making a decision that isn’t right for you – take the time to decide what’s best for you. That may mean selling the car yourself or it may mean voluntary repossession or it may mean a bankruptcy.

If you’re struggling with your car loan or other debt, we may be able to help. Contact us today for a free case evaluation and consultation to learn about your options for dealing with debt.