Losing your vehicle to repossession can be a stressful experience. If you’re facing difficulties with your car payments, you might be worried about whether the lender can take back your car. This article provides essential information about vehicle repossession to help you understand your rights and what to expect. While the specifics of repossession laws can vary, especially across different countries, understanding the general principles is crucial for any car owner.
How Many Missed Payments Before Repossession?
When you finance a car, the lender holds a security interest in your vehicle. This means they have the legal right to repossess the car if you breach the loan agreement, typically by failing to make payments on time. Even a single day late on a payment could technically put you in default, according to many loan contracts. Defaulting on your loan gives the lender the green light to initiate repossession.
It’s important to carefully read your car loan contract to check for a grace period. A grace period is an extension of time beyond the due date to make your payment without being considered in default. Keep in mind that a grace period for late fees doesn’t automatically mean you have a grace period before being in default. Your contract is the definitive guide.
Another common reason for default, besides missed payments, is failing to maintain the required car insurance (collision and comprehensive). Most loan agreements stipulate that you must keep continuous insurance coverage.
Will You Get a Warning Before Repossession?
Legally, lenders aren’t always required to give you a formal notification before repossessing your vehicle. While some lenders might provide a courtesy warning via phone or mail, they are not obligated to do so. Repossession can occur without prior notice once you are in default.
How to Avoid Car Repossession
If you’ve missed a car payment, acting quickly is key to preventing repossession. If you’re only slightly late and it’s an infrequent occurrence, your lender might not immediately repossess your car. However, it’s crucial not to delay. The best way to stop repossession is to catch up on your missed payments as soon as possible. Communicating with your lender is also advisable. A phone call to discuss your situation can be beneficial.
You need to become current on your payments before the lender takes further steps like sending a repossession agent or accelerating your loan. Loan acceleration means the lender demands the entire remaining loan balance immediately. This can happen at any point after you default, and many contracts waive your right to receive notice before acceleration. Once your loan is accelerated, the lender might refuse to accept a regular late payment.
If you anticipate difficulty making an upcoming payment, reach out to your lender before the due date. They might be willing to work with you, perhaps by granting a short extension or deferring a payment by adding it to the loan’s end. Lenders are more likely to be accommodating if you have a good payment history.
Bankruptcy, either Chapter 7 or Chapter 13, can also be a tool to prevent repossession, both in the short and long term, by providing legal protections and options to manage debt.
While it might be tempting to hide your car to prevent repossession, this can have serious legal consequences. In some jurisdictions, hiding a car to prevent repossession could even be considered a criminal offense, especially if you actively conceal it, like storing it in a locked garage belonging to someone else specifically to hide it from the lender. However, simply parking your car in your own garage for normal purposes is generally not unlawful.
What Repossession Companies Can and Cannot Do
Repossession agents can take your vehicle from any location where it’s accessible and unprotected. This includes public streets, parking lots (even at businesses), and your driveway. Even an open garage is considered fair game for repossession.
However, repossession companies must operate within legal boundaries and cannot “breach the peace.” This term covers a range of actions that are considered illegal during a repossession:
- Entering a closed and locked garage without permission.
- Cutting a lock or breaking through a locked gate to access your driveway.
- Proceeding with repossession if you (or someone else) object, unless the vehicle is already hitched to a tow truck or loaded onto a trailer.
- Using physical force or threats.
- Damaging property or threatening to do so.
Surprisingly, the presence of law enforcement during a repossession is often considered a breach of the peace in itself.
Your Right to Object
You have the right to verbally object to a repossession as long as your car isn’t yet connected to the repossession vehicle. You can tell the repossession agent not to take the car or to leave your property. You can even physically position yourself to obstruct the repossession, such as sitting in the car or standing in front of it. While this won’t stop the repossession permanently, it should halt the immediate attempt. The lender would then need to pursue other legal avenues, such as obtaining a court order to seize the vehicle.
Crucially, you cannot use physical force against the repossession agent or interfere with their vehicle or equipment. Doing so could lead to civil or criminal charges against you.
Repossession Company Licensing
Repossession activities are typically regulated. Repossession companies and agents often need to be licensed to operate legally. You may be able to verify a repossession company’s licensing status with your local or state authorities. Checking for proper licensing can help ensure the repossession is being carried out legally.
Repossession and Tribal Lands
Laws regarding vehicle repossession can be different within Native American tribal lands. Tribal law may govern whether a lender can repossess a vehicle located within reservation boundaries. Many tribes require permission from the vehicle owner or a tribal court order for repossession. However, once the vehicle is taken off tribal land, it generally becomes subject to state or federal repossession laws.
Protections for Military Servicemembers
The federal Servicemembers Civil Relief Act (SCRA) offers protection against “self-help” repossession for active-duty military personnel. If you are a servicemember and financed a vehicle before entering military service, it generally cannot be repossessed during your period of active duty without a court order. This law provides crucial safeguards for those in military service.
Personal Property in a Repossessed Car
To avoid complications, it’s wise to remove all personal belongings from your car if you believe repossession is imminent. While you are legally entitled to retrieve your personal items after repossession, it can be an inconvenient process. Furthermore, proving that certain items were in the car if they go missing can be challenging.
Towing companies and repossession agents usually have a responsibility to safeguard personal property left in a towed vehicle. However, this doesn’t mean they have to inventory and secure every item meticulously. You have a right to a reasonable opportunity to get your belongings back without being charged any fees. Contact the towing company or your lender as soon as possible to arrange the return of your personal property. If you’re unsure who has your car, contact your lender for information.
What Happens After Vehicle Repossession?
After repossession, the lender will sell your vehicle, usually through a public auction or a private sale. They are required to send you written notice of the sale, providing a “reasonable amount of time” before it occurs. What constitutes “reasonable” can be interpreted by courts, but less than 10 days’ notice is generally considered insufficient. The notice must contain specific details about your debt, the vehicle, and how you can reclaim it (redeem).
The notice will specify whether the sale will be a public auction or a private sale.
- Public Auction: The notice will include the date, time, and location of the auction. You or anyone you know can attend and bid on the vehicle. It’s sometimes possible to repurchase your car at auction, potentially for a lower price.
- Private Sale: The notice will state the earliest date a private sale might take place.
The lender is legally obligated to sell the vehicle in a “commercially reasonable manner.” This doesn’t mandate selling it for fair market value, but they must advertise the sale appropriately and seek reasonable bids. Vehicles sold at auction often fetch lower prices, which is generally considered commercially reasonable. However, selling it privately to a connected party for a drastically low price, or delaying the sale excessively causing value depreciation, could be challenged as commercially unreasonable.
The sale price of your vehicle determines the deficiency balance. The deficiency is the remaining amount you owe on the loan after the sale proceeds are applied to cover repossession costs and the outstanding loan balance. Sale proceeds are first used to pay for the “reasonable costs of repossession and sale,” including towing, storage, preparation for resale, sale expenses, and potentially attorney fees. Any remaining funds then reduce your car loan debt.
If you believe there were irregularities in the repossession process, such as wrongful repossession (you were not in default), breach of peace, inadequate notice, or improper sale procedures, consulting with a lawyer is recommended.
Will You Still Owe Money After Repossession?
Repossession is simply the lender recovering the collateral (your car) to recoup some of their losses. It does not erase your debt obligation. In almost every repossession scenario, a deficiency balance remains. If you had an “upside-down” loan (owing more than the car’s worth), a deficiency is almost guaranteed. Even without being upside-down, a deficiency can occur because the resale price is often less than the market value.
“Voluntary repossession,” where you willingly return the car to the lender, doesn’t eliminate your debt either. However, it can reduce the deficiency balance by avoiding some repossession costs, like the expense of hiring a repossession agent.
If the lender seeks to collect the deficiency balance, they must provide you with a written explanation of how it was calculated. This “explanation of deficiency” must detail your unpaid debt, repossession and sale costs, and the vehicle’s resale price. You can also request this explanation if you don’t receive it automatically, and the lender is then required to provide it within 14 days.
If you fail to pay the deficiency, the lender can pursue legal action against you, including a lawsuit. They might also sell the debt to a collection agency, which will then attempt to collect from you.
Getting Your Car Back After Repossession
Aside from bankruptcy in some cases, the primary way to recover your car after repossession is through redemption. Redemption involves paying the entire remaining balance of the car loan plus all repossession-related costs. These costs include towing, storage, and potentially legal fees. You must pay this full amount before the lender sells the vehicle. The pre-sale notice from the lender must explain your redemption rights and how to redeem your car.
Seeking Further Repossession Information
Understanding vehicle repossession is essential for protecting your rights. If you have further questions or need more detailed information, consulting with a legal professional or seeking resources from consumer protection agencies is advisable.
