Your Repossession Rights

  • When your car is seized by the creditor, what are your rights
  • Dealing with the creditor after the "repossession" (reselling the car)
  • Your credit reports affected by the repo
  • Repossession laws by state & more FAQ about a repo

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

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

The Repossession Process

When you buy a car, truck, or other vehicle on credit, you should be aware that until you have made the last payment your creditor retains important 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 in advance. It's completely legal to take back a car that's behind on payments. You have to remember, that car secured the loan. Its collateral protect 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 places limits on 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 Your Car

Normally, 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 are in default, the laws of most states permit the creditor to repossess your car without prior notice. If your creditor has repeatedly allowed you to pay late and communicated such with you in writing then it's a good idea to keep those letters. 

An example of this could be where your credit union or bank has told you it will not take actions as long as you are trying your best and making payments to catch up but then suddenly they come in the night and steal your car. That could be an area 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) by 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 a 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 the 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 give you guidance about how your state courts have dealt with these matters before.

Selling Your Car Out From Under You

Once your car has been repossessed your creditor may decide to keep the car 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 the car be sold instead. 

You may want to exercise this right if the car is worth more than what you owe on it. Most creditors prefer to sell the car rather than keep it. If your creditor chooses to resell the car at public auction, state law usually requires you to be notified of the date so that if you wish, you can attend and participate in the bidding. 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 on bidding.

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 buyback the vehicle by paying the full amount owed on it plus the expenses connected with its repossession, such as storage and preparation for sale. 

Some states have consumer protection laws that also allow you to "reinstate" your loan. This means that you can reclaim your car by paying the amount you are behind on your loan together with 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 that is below fair market value may indicate that the sale was not reasonable. Failure to resell your car in a commercially reasonable manner 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

The deficiency balance is the amount left over after the car has been sold. Once the car is sold off then the loan becomes unsecured. Since the car is gone, there is no longer collateral attached to the loan and therefore it has become unsecured. Hopefully your creditor will get the full amount of the loan at the sale, but if they dont 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 make sure the creditor gets the best price. Even if you know someone that wants to buy the car then pass this information onto your creditor. It's it your best interest to get the BEST price because it will be you paying 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 to do so. Many credit unions and smaller banks will try to get the best price but it's nice to know you can help in any way by spreading word of the car's sale date. Whatever it takes (legally, of course) to get yourself 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 payback the deficiency balance to avoid being sued or because you want to repair your credit, then you stand a pretty good chance of negotiating a settlement and call it even. Because there is no longer any security 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 put the settlement offer in writing as well as getting 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 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 are expecting delays in the coming months. Communication is key with most debts but especially when it comes to your car. You'd be surprised how many will work with you on catching up late payments because the creditor really doesnt 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 entire 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 chance 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 specifically what the rule is. It is probably listed under business or commercial fraud. It's not a good idea to hide the car and it's really stressful. You'll spend a lot of time worrying about it and looking over your shoulder and usually the creditor always finds the car eventually. By then, you'll owe more money for all the work they put in tracking it down.

Does a bankruptcy stop a repossession?

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

A bankruptcy filing can protect your car in most cases so be sure to consult a good bankruptcy attorney about your car repossession. At the very least a 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 necessity to work. If so, the creditor can agree to reaffirm the debt with you and allow you to continue making payments under the bankruptcy.

What about a "Repo" on my credit history?

A repossession on your credit is very negative and remains for 7 years so it's in your best interest to conduct an investigation of the details. A sloppy record by the creditor may just result in a deletion for you. You should check your credit reports before you decide to dispute it to see exactly how the repo is being reported. 

Consumers DO remove repos from their credit reports. It's really just a matter of record keeping combined with using the 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 definitely dispute it. Be aware though, 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 its being reported in your credit reports including the right to fix or delete it. If you hire an attorney to fight an improper repossession then he will normally work to protect your credit rating as well.

What if I feel the repossession was conducted in an illegal manner?

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

A good 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 as "implied acceptance" and therefore, their actions unlawful. 

Another practice that is illegal would be the improper sale procedures discussed above. You have a right to be involved in the repossession process and that includes the creditor working to get the best possible price for your benefit. If the car had a fair market value of $15,000.00 and your creditor sold it for $5,000.00 then clearly you've been treated unfairly. 

State Laws & Repo Codes (statutes) 

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

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