Most people who own a car rely on it for getting virtually everywhere they need to go. That may include school, church, the store, or to pick up the kids; but for most, it primarily includes work. Thus, when you are late on your car payments, it may seem terribly ironic that the bank wants to deprive you of the means of getting to work to pay them back faster, but that is exactly what could happen.
Whether leased or finance, your creditor has important rights to possession of the vehicle in the event of a default. These rights are established in both the lending documents signed at the time of purchase and in the laws of the state in which you live. Most commonly, when a buyer fails to make timely payments on a vehicle, the lender will have a contractual and statutory right to take possession of the vehicle without going to court or giving you advance warning. This is what is known by most as a “repossession.” Your creditor may also be able to sell the right to take possession of the vehicle to a third party, called an assignee, who would then have the same right of repossession. It is also worth noting that in some jurisdictions, failing to carry adequate insurance may also be a trigger for repossession.
Repossession laws are generally governed by the Federal Trade Commission and state laws. Unfortunately for consumers, these laws are highly slanted in favor of protecting the lender. Otherwise, lenders would be less likely to make financing available for vehicle purchases. Generally, the only rules regarding repossession are the standard Fair Debt Collection Practices Act laws, and some state rules regarding how a creditor can repossess the vehicle and what they can do with it (and any possessions inside) once they have it. Generally, all jurisdictions require the creditor to auction the vehicle to the highest bidder at a public auction or lose the right to any further collection against you. They also frequently allow for a holding period before auction during which you, as the borrower, can pay your account current (or in some jurisdictions, pay off the entire remaining balance) and have the vehicle returned to you.
When Can a Creditor Repossess My Vehicle?
In many states, your creditor can take possession of your vehicle as soon as you default on your loan or lease. That could mean missing your first payment, failing to carry adequate insurance on the vehicle, or violating another condition of the lending documents. Your contract should state the specific circumstances that constitutes a default.
However, simply because the creditor is entitled does not mean that it will exercise its right in every situation. It is often possible to work with your creditor to change your payment date, roll payments to the end of your repayment term, reduce payment amounts during times of financial hardship, etc. If your creditor agrees to such a change, make sure they do it in writing. Most lenders are big organizations and it is possible for things to get lost in the shuffle. If your car gets repossessed despite an agreement, you will need the written proof to protect your interests in court.
Once you are in default, most jurisdictions allow creditors to repossess vehicles at any time, without notice, and to come onto the property of others (including you, your employer, your family, friends, etc.) to do so. However, when seizing the vehicle, the repossession agent may not commit a “breach of the peace.” In some states, that means using physical force, threats of force, destroying or damaging property (like garage doors or padlocks on gates), or breaking into a structure or enclosed space without permission. If a breach of the peace occurs, the creditor would typically be required to pay for any damages, the repossession agent may be subject to criminal charges, and it may create a legal defense to any further collection efforts by the creditor.
What is the Process for Selling My Vehicle After Repossession?
Once your vehicle has been repossessed, your creditor can either keep it or sell it at auction. A handful of states still also allow for private sales, but these have come into disfavor due to the possibility for undermarket sale prices and collusion. In some states, your creditor must inform you about when and where your vehicle will be sold or it if will be kept.
As noted above, some states have laws that allow you to “reinstate” your loan. These allow you to reclaim your vehicle by paying the amount that is overdue on your account, as well as your creditor's repossession expenses. Of course, upon reclaiming the car, you must remain current on all future payments or the vehicle will again end up in repossession.
What Happens to My Personal Property in the Vehicle?
The personal belongings inside of a vehicle belong to the owner and may be retrieved at a reasonable time and place from the creditor or its agents. Some states require the creditor to provide an inventory, but not all. If your creditor cannot account for possessions left in the vehicle, you may want to speak to an attorney and/or local law enforcement. You can find an attorney in your area able to help you with both your repossession and the missing property by visiting HG.org and using the attorney search functions.
If My Car is Sold for Less Than I Owe, Am I Still Liable for the Balance?
Yes. Any difference between what you owe on your car and what your creditor gets for it at auction is called a “deficiency.” If the creditor has followed all of the proper repossession laws, it will be entitled to continue pursuing you for that deficiency. On the other hand, if the vehicle sells for more than the amount you owe, then the creditor must pay you the surplus funds after satisfying all outstanding balances on your account (note, this situation is fairly uncommon).
What Can I Do to Prevent Repossession?
There are options when you fall behind on your car payments. The best thing to do is speak with your creditor and try to negotiate a compromise. Many consumers feel uncomfortable doing this alone, so it is wise to hire an attorney to assist you.
You may also be in a position to file for bankruptcy. Bankruptcy would immediately halt repossession efforts while the case is pending and, depending on your particular circumstances, may restructure your loan to make payments more affordable and discharge all or a portion of your debt on the vehicle. Again, consult with an attorney to discuss your options for bankruptcy before filing.
