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What Happens When Your Car Is Repossessed?

EverQuote staff

You rely on your car to get you places. Without it, you may be unable to get to work, drive your kids to school or run errands. Having your car repossessed is a problem that quickly spreads to other areas of your life.

Vehicle repossession happens when you fail to make payments on a vehicle with a loan or lease. Finding yourself in danger of car repossession requires swift and informed action. We spoke with two experienced lawyers to find out how to deal with auto repossession, what rights you have if it happens to you and how to prevent a repossession before it's too late.

How auto repossession works

In some states, your creditor or lessor can repossess your car the first time you default on your loan or lease. By failing to make a car payment once, you are at risk of losing your vehicle to the repo man. Your creditor has the right to come onto your property and seize your vehicle without notice. Attorney John-Paul LaPré cautions that your financial responsibility is not absolved even after your vehicle is taken: "Debtors often believe that when the car went away, so did the loan. This is not so."

After repossession, the lender could auction off the vehicle if you don't have enough funds to cover the balance owed on the car. If the car sells for less than what you owe, you might be held liable for the deficiency -- the difference between the sale price and your balance.

The debtor will send written notice of the deficiency amount. This amount is often much higher than what you owed on your original balance. LaPré notes that these written notices usually "threaten lawsuits if the deficiency is not paid."

What to do if your car is repossessed

1. Pay off the repossessed car

Bankruptcy lawyer Steven Striffler notes that you have the right to "redeem the vehicle for the outstanding loan balance plus repossession costs before the lender may sell the vehicle." If you have the funds, paying off the car is the fastest, most effective course of action.

2. Negotiate

If you can't pay off your balance, call your lender to see if you can negotiate a "workout," an arrangement between you and your creditor.

3. File for bankruptcy

If a workout is unsuccessful, you could consider filing for bankruptcy. If you act quickly, you may be able to file for Chapter 13 bankruptcy and get the car back before it's sold. Striffler says that depending on the circumstances, this action "may allow the borrower to retain or regain possession of the vehicle and possibly modify the terms of their loan."

4. Participate in the auction

If you haven't come to an agreement with your lender, they might decide to sell your repossessed vehicle at an auction. If you have sufficient funds, you can buy back your car.

5. Pay the deficiency

If you don't buy the car back, you are still held responsible for the deficiency. You will receive a letter with the deficiency amount. If you refuse to pay this amount, the creditor could take legal action against you.

Understand your rights

Your creditor has the right to repossess your vehicle if you don't make timely payments, but you also have legal rights in the process of repossession.

What a creditor cannot do

Your creditor cannot execute a "breach of the peace"LaPré states: "A collector or repossession company cannot use threats, coercion or other oppressive acts when recovering a vehicle." If your creditor uses these tactics to obtain your car, they may be required to compensate you or pay a penalty. You will also have a legal defense when dealing with your deficiency. An attorney will provide you with a course of action if your vehicle was taken in this manner.
Your creditor cannot intrude without your consentThe collector cannot enter your private property, even if that's where the car is located, without your consent. This includes removing your car from a closed garage without warning you ahead of time.
Your creditor can't sell or keep any personal property found inside your vehicleYou have the right to any personal property that was left in the car when it was seized, Striffler notes. If any of the items you left in your car are missing or not accounted for, you can work with an attorney to get compensation.

Avoiding car repossession

Taking action to prevent your vehicle from being repossessed will make your life easier going forward. Make sure you can make payments on time before committing to a lease or taking out a loan for a car.

If you're late on a payment, LaPré suggests you review the contract you signed when you got the car. The contract should say what it means to "default" on your loan or lease. "Don't let it get out of hand," LaPré says. "Make a late payment ASAP, and be certain to include all late fees and other valid charges."

Contacting your lender to negotiate a solution when you're in default is better than getting in touch after a repossession. "Don't just sit there waiting for the repo man," LaPré says. "Get in touch with the lender. Often they will negotiate something that may be much better than repossession and lawsuits." For instance, it may be possible to reinstate or refinance the loan, or to surrender the car.

If you can't work out a deal with the bank, LaPré recommends consulting an experienced bankruptcy lawyer.

Whatever you do, LaPré says, '"Don't do nothing!"