• When the creditor seizes your car, what are your rights

  • Dealing with the creditor after the "repossession" (reselling the car)

  • Your credit reports are affected by the repo

  • Repossession laws by state and more FAQ about a repo

It's a bad day when your car gets repossessed. Ending your workday by discovering the repo man has come and gone is a terrible situation. We don’t always have enough money to pay our credit cards, but not making car payments carries a separate set of circumstances. One is that your transportation can vanish. 

There's a lot of confusion surrounding the legalities of car repossession, and people generally have no idea what their rights are on the car or how to protect themselves. 

The Repossession Process

When you buy a car, truck, or another vehicle on credit, you should be aware that until you have made the last payment, your creditor retains essential rights in the vehicle. These rights are established by the contract you signed and by the laws of your state. 

Your failure to make timely payments on the vehicle carries serious consequences. Your creditor has the right to "repossess" -- take back your car without going to court or, in many states, without warning you. It's legal to take back a car behind on payments. You have to remember that car secured the loan. Its collateral protects the creditor. No judgment is needed to repo your car.

However, your creditor's right to repossess your car is subject to some limitations. In particular, state law limits how your creditor may repossess the vehicle and resell it to reduce or eliminate your debt. If any rules are violated, your creditor may lose other certain rights against you or even be required to pay you damages. 

Taking Back Your Car

Usually, your creditor has legal rights to seize your vehicle as soon as you "default" on your loan. What constitutes default will be stated in your contract, but failure to make a payment on time would certainly be an example. However, if your creditor has agreed to accept your late payments or to change your payment date, the terms of your original contract may no longer apply. 

Such a change in your credit contract may be made orally, in writing, or, sometimes, simply by your creditor's repeated acceptance of late payments without complaint. Once you default, most state laws permit the creditor to repossess your car without prior notice. Keeping those letters is a good idea if your creditor has repeatedly allowed you to pay late and communicated with you in writing. 

An example of this could be when your credit union or bank has told you it will not take action as long as you are trying your best and making payments to catch up, but suddenly they come in the night and steal your car. That could be where they would have to give the car back.

When seizing the vehicle, your creditor may not commit a "breach of the peace" (disturbing the peace) using physical force or threats of force. Taking your car over your protest or removing it from a closed garage without your permission also may constitute a breach of the peace, depending on the law in your state. Some customers know this law and will lay on the car, lock themselves inside or make a scene to get the repo agent to back off.

Should there be a breach of the peace in seizing your car, your creditor may be required to pay the penalty or, if any harm is done to you or your property, to compensate you. Also, because of a breach of peace, your creditor may lose the right to collect a "deficiency judgment."

A deficiency judgment is a difference between what you owe on your loan and what your creditor receives when reselling your vehicle. A judgment isn't automatic. The creditor will have to sue you for the deficiency balance. A private repo attorney or your local legal aid society can guide you on how your state courts have dealt with these matters.

Selling Your Car Out From Under You

Once your car has been repossessed, your creditor may decide to keep it as payback for your debt or resell it. In any case, generally, your creditor must notify you about what will happen to the car. Under most state laws, your creditor must tell you if it wants to keep the car because you have the right to demand that it be sold instead. 

If the car is worth more than what you owe, you may want to exercise this right. Most creditors prefer to sell the car rather than keep it. If your creditor chooses to resell the car at a public auction, state law usually requires you to be notified of the date so that you can attend and participate in the bidding if you wish. You'd probably be hard-pressed to find another loan because of your credit ding, so you'd better show up with cash if you intend to bid.

If the vehicle is to be sold privately, you are usually entitled to a notice of the date after which it will be sold. In any of these circumstances, you may be entitled to "redeem" or buy back the vehicle by paying the total amount owed plus the expenses connected with its repossession, such as storage and preparation for sale. 

Some states have consumer protection laws allowing you to "reinstate" your loan. This means you can reclaim your car by paying the amount behind on your loan and your creditor's repossession expenses. Check with your state consumer protection office to learn what the laws are in your state. 

Any 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. A resale price below fair market value may indicate that the sale was unreasonable. Failure to resell your car commercially reasonably may give you either a claim against your creditor for damages or a defense against a deficiency judgment. 

Whatever method is used to dispose of a repossessed car, a creditor may not keep or sell any personal property found inside. If you find that your creditor cannot account for valuable articles left in your car, you may wish to speak with an attorney about your right to compensation.

Paying Back What You Owe on the Car

The deficiency balance is the amount left over after selling the car. Once the car is sold off, then the loan becomes unsecured. Since the car is gone, no more extended collateral is attached to the loan; therefore, it has become unsecured. Hopefully, your creditor will get the full amount of the loan at the sale, but if they don’t, they'll be coming after you for it. 

Since you will be liable for the remaining balance, it would be in your best interest to ensure the creditor gets the best price. Even if you know someone who wants to buy the car, pass this information on to your creditor. It's in your best interest to get the BEST price because you will pay the deficiency. 

You can be sued for the deficiency balance, and we all know how rotten it feels to pay for something you no longer have. If you can get involved in the sale process, do your best. Many credit unions and smaller banks will try to get the best price, but it's nice to know you can help by spreading the word about the car's sale date. Whatever it takes (legally, of course) to get involved in that process can only help you in the end. The less you are left owing on the car, the better, right?! 

If you've decided to pay back the deficiency balance to avoid being sued or because you want to repair your credit, you stand a good chance of negotiating a settlement and calling it even. Because no security is attached to the loan, the creditor may be willing to accept 40-60% of the remaining balance to settle the debt as paid in full. 

You should write the settlement offer and get their acceptance in writing (accord and satisfaction) to protect yourself. Among the terms, ask the creditor to re-rate your account from a 'charge off' or 'collection' to a "settled for less" rating. It simply looks better than a paid charge-off. Your creditor may not agree to remove the repossession status but at least taking it out of collections and notating it as settled is a step in the right direction. After some time passes, you can then begin to rebuild your credit.

Voluntary Car Repossession May Save You $$$

It's hard to dispute a repossession, so you should contact your creditor when you first realize you will be late with a payment or expect delays in the coming months. Communication is critical with most debts, especially when it comes to your car. You'd be surprised how many will work with you on catching up on late payments because the creditor doesn’t want to deal with a repossession. It's a lot of work. 

If your creditor refuses to accept delayed payments or work with you and decides to repossess the car, then a voluntary repossession may be something you will want to consider. You'll save the creditor the expense of tracking down the car and paying the repo man, which, ultimately, you'll have to pay. 

Can I get my car back? 

You can "redeem" the property by offering the creditor the unpaid balance on the debt plus expenses reasonably caused by the repossession. You must do this before the creditor has disposed of or sold the property. Usually, you cannot redeem just by paying the amount in arrears unless the creditor approves it. Many credit unions will allow this, but generally speaking, once a creditor has the car in their grips, they will not give it back unless you pay it off. Why would they want to change it again?

Can I go to jail for hiding the car?

Concealing the car can be a crime. Concealment of a vehicle with intent to hinder a creditor is a felony in some states. You need to read your state statute and see the rule. It is probably listed under a business or commercial fraud. It's not a good idea to hide the car, and it's stressful. You'll spend a lot of time worrying about it and looking over your shoulder, and the creditor usually finds the car eventually. By then, you'll owe more money for all their work tracking it down.

Does bankruptcy stop a repossession?

Bankruptcy has an automatic stay to protect debtors, so any collection efforts would violate the stay. Often, this is how people protect their assets rather than just ceasing payments. Bankruptcy gives you protection rights that not paying does not. 

A bankruptcy filing can protect your car, so consult a good bankruptcy attorney about your car repossession. At the very least, bankruptcy will let you hold onto the car legally until your bankruptcy hearing, where the trustee will decide if you need to give it back or are allowed to keep it because of the necessity to work. If so, the creditor can agree to reaffirm the debt with you and allow you to continue making payments under bankruptcy.

What about a "Repo" on my credit history?

A negative repossession on your credit remains for seven years, so it's in your best interest to investigate the details. A sloppy record by the creditor may result in deletion for you. You should check your credit reports before you dispute them to see precisely how the repo is being reported. 

Consumers DO remove repos from their credit reports. It's just a matter of record-keeping combined with using fair credit laws to dispute it. If you find that there are flaws in the way the creditor is reporting your car loan, you should dispute it. Be aware that if you still owe money to the creditor and they haven't been able to find you to collect it, bringing attention to yourself through credit report disputes will put you on their radar. 

On the other hand, if you have sued a creditor for an improper repossession and won, then definitely fight for your right on how it’s being reported in your credit reports, including the right to fix or delete it. If you hire an attorney to fight an improper repossession, he will typically work to protect your credit rating.

What if I feel the repossession was conducted illegally?

If you think your creditor violated your rights by taking back the car, you should contact a qualified repossession attorney. There can be mistakes with repossession or straight-up violations, and you may be able to get your car back or go after the creditor for damages. 

An excellent example of this could be, as we discussed above -- the creditor accepting your partial payments and then blind-siding you with a repo. This could be considered "implied acceptance" and, therefore, their actions are unlawful. 

Another illegal practice would be the improper sale procedures discussed above. You have a right to be involved in the repossession process, including the creditor working on getting the best possible price for your benefit. You've been mistreated if the car had a fair market value of $15,000.00 and your creditor sold it for $5,000.00. 

State Laws & Repo Codes (statutes) 

You can view the statutes per state to determine the repo laws for your state or the creditor's state. Using this information, you can determine what was permissible under the law in repossessing your car and whether it was conducted illegally or legally.  You can also look up state-by-state repo codes. These repo codes can help you determine legal activity in your state, like recovery guidelines, deficiency requirements, documents required to transfer car ownership, and state motor vehicle provisions.

What is the statute of limitations on car repossession?

The statute of limitations on car repossession is a state law that governs how long a lender can wait to repossess a car after the borrower defaults.

When you sign for a car loan, you agree to make payments for an agreed-upon period. If you fail to make those payments, the lender can take back the vehicle and sell it at auction. The statute of limitations on car repossession is not set in stone and differs from state to state. In some states, lenders have as long as six years before they must either file suit or forfeit their rights to the vehicle.

What are the advantages of a statute of limitations on car repossession?

A statute of limitations on car repossession is a law that limits the amount of time after which a creditor cannot repossess a vehicle.

There are many advantages to having a statute of limitations on car repossession. First, it prevents people from being saddled with debt they cannot pay off. Second, it protects people who have lost their job and are struggling to keep up with their payments from having their cars taken away from them. Third, it prevents people who have been out of work for an extended period from being unable to find employment because they owe money on their vehicles.

How long does the statute of limitations on car repossession last?

The statute of limitations on car repossession is a law that dictates how long a creditor has to file a lawsuit against an individual for defaulting on the loan. The statute of limitations for car repossession can last anywhere from 3 months to 10 years, depending on the state. In the state of California, the statute of limitations for car repossession is three years.

What are some car repossession loopholes?

Using shady tactics is not recommended, but many people want to know what loopholes they can use to leverage getting their car back or avoiding a repo. This site has information and services to help you with demand letters to get your car back.

Some car repossession loopholes are:

  • Taking the car to a different state and registering it there.

  • Transferring the title to a family member or friend.

  • Leasing the car out to someone else.

What are the repercussions of buying a car in a repo auction?

Buying a car in a repo auction is risky because you can't inspect the car beforehand. You can only get an idea of the car's appearance from the pictures on the website.

The cars are sold by banks and other financial institutions, which repossessed them from people who didn't make their payments. Sometimes these cars have been involved in serious car accidents and have not been repaired. This page has an extensive article on the deadly number of car accidents, especially in California. Many of these cars are put back on the road leading to injury and death.

You should also be aware that these cars have no warranty, so if something goes wrong after you buy them, you will have to cover all costs to fix them.

Is it legal for a private seller to repossess a car?

The federal government provides a way for private sellers to repossess the cars they sell to consumers in case of a default or breach of contract.

For the seller to be able to repossess the car, they must first notify the consumer in writing that they will repossess it. They must also provide an itemized list of what is owed and how much it is. If the consumer still does not pay, then after 90 days, the seller can repossess the car without any legal ramifications.

The only exception is if either party committed fraud during the sale, such as misrepresenting information about damage or odometer readings on a vehicle.

How to remove a car repossession from your credit reports

The three major credit reporting agencies are TransUnion, Experian, and Equifax. You can have a car repossession removed from your credit report by contacting one or all three. The process depends on whether you can negotiate a payoff or prove the debt is invalid somehow.

To remove a car repossession from your credit reports, you must send a written request to the agency that has the delinquency. If the creditor is listed as an “original creditor,” you can write a letter to that creditor requesting that they contact the agency to have the delinquency removed. If the lienholder is listed on your report as “lienholder,” you can also contact them directly and ask them to contact their agency to remove the delinquency.

A delinquency is any unpaid debt that appears on your credit report. This includes any unpaid bills, collections agency accounts, unpaid IRS tax debts and other types of unpaid debts reported to a credit reporting agency.

When requesting the removal of a car repossession from your credit reports, be sure to include:

  • A detailed explanation of why you believe it should be removed from your report;

  • The full name and address of the creditor or lienholder;

  • A copy of any court documents showing ownership of the repossessed vehicle; and

  • A letter from you as proof of ownership – such as a bill of sale or title

There are no guarantees that the creditor will remove the repo from your credit and odds are very low that they will, but if you still owe a balance on the loan, they may agree to remove it or change it to “settled” if you pay off the loan. Another option is if the car loan has false or outdated information that can not be proven, then it must be deleted.