When can a lender repossess a vehicle?

When you borrow money to purchase car, truck, or other vehicle you should always keep in mind that until you have made the last scheduled payment the lender on the vehicle retains important rights in the vehicle. These rights are in part established by the contract you signed when you borrowed the money to buy the vehicle as well as the laws of your state.

A loan to purchase or borrow money using the car as collateral is a “secured loan.” This means that the vehicle is the collateral for the money you borrowed. If you fail to make timely payments on the vehicle loan there may be serious consequences. Your lender has the right to “repossess” (take back) your car without first suing you in court or without giving you any advance warning. If the lender takes back the vehicle the lender may sell it in order to recover all or part of what the lender is owed.

Under the contract you signed to borrow money your creditor has a legal right to seize your vehicle as soon as you “default” on your loan. “Default” will be defined in the contract. Failure to make a payment usually constitutes a “default” but you may have a right under the contract to “cure” the default before the lender takes action to repossess the vehicle.

What can you do to protect yourself from a possible repossession if you fall behind on vehicle payments?

First, try and make any missed payments as soon as possible. If you cannot make a regularly scheduled payment, by the due date or within the “grace period,” call the lender and let them know when you can make the payment. The lender may be able to provide some additional time for you to make a scheduled payment. Communicate with the lender about payments.

If a lender’s representative threatens repossession remain calm. Most lenders do not want to repossess a vehicle but would rather have payments. Do not make a promise to pay unless you are certain you can make a payment. Try to work with the lender if you can in order to keep the lender from ordering a repossession.

What if a repossession agent shows up at your house?

When attempting to repossess a vehicle the repo agent may not commit a crime (like breaking into your garage), create a disturbance or use physical force or threats of force to secure the car. The car may not be repossessed while you are in the car. In some states the repo agent may not force you to make the vehicle available for repossession, such as forcing you to remove it from behind a locked gate or from a garage. However, in some states you may not conceal the car from repossession by hiding it.

Can I get my car back if it has been repossessed?

Remain calm. You still have rights. Once a car is repossessed your creditor will seek to sell the car. However, to do so they must usually follow the requirements of state law. State law may still provide you some right to recover the vehicle. In most states you will be offer the opportunity to pay what you owe on the car and regain possession. If you are not able to regain possession of the car then the lender must notify you that the vehicle will be sold and the proceeds of the sale applied to the debt you owe the lender. The resale of a repossessed car must be conducted in a “commercially reasonable manner.” This does not mean that your creditor must get the highest possible price for the car. However, if the sale price is below fair market value then there may be an argument that the sale was not commercially reasonable.

It may be possible for you to consider filing Chapter 13 bankruptcy and recover your car. However, you must act quickly. If your car is repossessed you should immediately consult with an experience bankruptcy attorney about your options.

What if the lender sells my car for less than I owe?

If your car sells for less than you owe the lender the amount left over is the deficiency balance.
Once the car is sold the unpaid balance is unsecured because the collateral attached to the loan is gone. The deficiency balance is like any unsecured debt. The lender will demand payment and if you don’t pay the debt, you could be sued. You may be able to negotiate payment terms or even a lump sum settlement. Always get any offer of settlement in writing to protect yourself.

Knowing steps to prevent repossession, including working with your lender, knowing what to do if you face possible repossession of your vehicle or if your vehicle is repossessed is important information if you find yourself behind on vehicle payments. If you are behind on payments as part of difficult financial challenges, including overwhelming debt, you may want to consider consulting with an experienced debt relief attorney. There may be options that would permit you to keep your vehicle and pay for it as part of a reorganization bankruptcy.