Owning a car can be costly. With operating costs like fuel, insurance, and maintenance coupled with car loans, it's no surprise that people sometimes default on their loan payments, resulting in car repossession.
What happens if your car gets repossessed, and what are your rights during the repossession process? Here's what you need to know.
What Is Car Repossession?
Car or vehicle repossession happens when a lender takes back your vehicle due to a default on a loan or lease agreement.
While lenders often repossess vehicles to recoup their money due to missed or late payments, other reasons include:
- Failure to maintain insurance: Some auto loans require borrowers to maintain adequate insurance coverage. If you don't have enough insurance, the lender may have the right to repossess your vehicle. Shopping for car insurance discounts can help you save.
- Breaching contract terms: Some auto loan contracts have unique terms and conditions. If you violate the loan terms, the lender may have the right to repossess your car. Read the fine print in your loan agreement carefully.
Once repossessed, the lender may sell your vehicle at a private sale or car auction. If your vehicle sells for less than your outstanding loan balance, you might be liable for the difference. This is known as a deficiency balance.
Types of Car Repossession
There are two types of vehicle repossession: voluntary and involuntary.
Voluntary Repossession
Voluntary repossession happens when you surrender your car to the lender before it's taken. This can ease the distress of losing your car when least expected. It may also help you avoid the fees you might incur during an involuntary repossession.
While a voluntary repossession will still negatively impact your credit score, certain debt collectors may treat you more favorably if you take a proactive approach to resolve your default.
Involuntary Repossession
Involuntary repossession happens when the lender forcefully seizes your vehicle, typically through repossession agents. You can't control the conditions of the surrender. Without warning, the lender can repossess your vehicle at any time, day, or place. This is why it's best to opt for a voluntary surrender if you can't make your auto loan payments.
Understanding Your Rights
Lenders can repossess your vehicle if you default on payments, but you still have legal protections during repossession.
You Must Be Informed After Repossession
In most states, lenders can repossess your vehicle without giving you prior notice if you fall behind on payments. However, the lender must provide a notice of intent to sell your vehicle after repossessing it. The notice should include:
- Your outstanding balance and additional fees
- Your vehicle's location
- Your timeframe to reclaim the vehicle (if possible)
If your lender fails to comply with state law requirements, you may have legal grounds to sue for wrongful repossession.
Your Personal Property Must Be Returned
Lenders can't sell or keep personal belongings found inside repossessed cars. While state laws vary from state to state, in most, the lender must list the items in your car and provide details on how to retrieve them.
If the lender refuses to return your personal property or items are missing or damaged, you can take legal action against the lender.
Lenders and Repo Companies Can't ''Breach the Peace''
Your lender or repo agent can't use threats or physical force during repossession. Your lender also can't remove your vehicle from a closed garage without your consent.
If your lender or repo agent uses these tactics to repossess your car, you can seek legal recourse. Keep all documentation to support your claim.
If you believe your lender or repo agent violated any of these rights, reach out to your state attorney general or consumer protection agency to file a complaint.
Legal Protections and Options
You may have several options to get your car back after repossession. While your choices may vary depending on your state's laws, lender's terms, and how quickly you act, here are some common ways to get your vehicle back.
Redeem the Car
Some lenders may allow you to redeem your car. This will enable you to buy back your vehicle before it's sold by paying the outstanding loan balance and other repossession costs, such as towing and storage fees.
Reinstate the Loan
You can reinstate your car loan in some states if your loan contract allows it. Unlike redemption, you won't have to pay the entire outstanding amount. You'll just have to settle any overdue payments and repossession fees.
If reinstatement is an option in your state, you'll need to reach out to your lender fast, because they aren't obliged to wait.
Unfortunately, a vehicle repossession can stay on your credit report for up to seven years even if you redeem your car or reinstate the loan. It can also cause your car insurance premiums to spike, making it difficult to get cheap car insurance.
Role of Bankruptcy in Repossession
Redeeming your car or reinstating the loan may not be possible, especially if you're cash-strapped or extremely far behind on your loan payments. Filing for Chapter 7 or Chapter 13 bankruptcy might be a last resort.
Filing for bankruptcy can temporarily prevent repossession. While it may seem like a car repossession loophole, it won't wipe out what you owe. However, it can give you more time to renegotiate with your lender. Filing for bankruptcy can also protect you from a deficiency judgment if your vehicle is repossessed and sold.
Get an Insurance Quote
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