When facing financial difficulties, especially in situations like bankruptcy, dealing with a car loan can present tough choices. You might decide to stop payments and surrender your vehicle, expecting the lender to repossess it. This seems straightforward: stop paying, lose the car. However, the reality can be more complex. What exactly happens if you stop making payments, wanting to give the car back, but the lender doesn’t repossess it?
The Unexpected Scenario: Lender Refuses Repossession
The legal system doesn’t clearly address situations where a lender declines to repossess a vehicle after payment cessation. Typically, when you default on your car loan, the lender gains the right to repossess the vehicle. But, surprisingly, they are under no legal obligation to actually do so. You might be ready to surrender the car, but the lender might simply not come to take it.
Why Lenders Might Not Repossess Your Car
The primary reason behind a lender’s reluctance to repossess a car is often economic. Repossession is not a cost-free process for them. Consider the expenses involved:
- Locating and Towing: Finding the vehicle and towing it back incurs costs.
- Vehicle Refurbishment: The car might need repairs or cleaning to be resold.
- Finding a Buyer: Selling the repossessed vehicle requires time and resources.
If the car’s market value is low, perhaps only a few thousand dollars, these repossession costs can outweigh the potential recovery from selling the vehicle. In such cases, lenders might find it financially unviable to repossess.
The Problematic Situation: Stuck with a Car You Can’t Get Rid Of
If the lender chooses not to repossess, it unfortunately doesn’t simplify things for you. The lender also isn’t obligated to release the lien on the car title. This creates a frustrating deadlock:
- You’re Stuck With It: Despite wanting to surrender it, if the lender doesn’t repossess, the car remains in your possession.
- You Can’t Sell It: The lender retains the lien, meaning you cannot legally sell the car. Selling it would be considered theft as you don’t have clear title to transfer.
- You Can’t Dispose of It: You cannot junk the car or give it away either because of the outstanding lien and the lender’s continued legal claim.
So, what can you do if you find yourself in this predicament?
Navigating Your Options When Repossession Doesn’t Happen
Fortunately, you are not without options. Here are a few approaches to consider:
- Motion to Redeem: Consulting with an attorney to file a motion to redeem the car for a nominal amount could be a solution. This legal process aims to force the lender to release the lien for a small payment, granting you ownership and the ability to sell or dispose of the vehicle.
- Negotiated Lien Release: Offering the lender a small sum of money to release their lien directly can be a quicker, albeit potentially costlier, alternative. Negotiating a reduced payoff to remove the lien might be acceptable to the lender to avoid repossession costs.
- Continued Use: While not ideal, you could continue using the car as long as it runs. Since you’re not making payments and the lender isn’t repossessing, you essentially have temporary use of the vehicle without further financial outlay, although this does not resolve the underlying debt or lien issue.
- Persistent Contact: Repeatedly contacting the lender might eventually prompt them to repossess the car. While potentially time-consuming and frustrating, consistent communication could lead the lender to reconsider repossession to end the situation.
It’s also worth noting a legal perspective from outside Minnesota. A court in New England has ruled that a lender’s refusal to repossess or release the lien could be seen as a violation of bankruptcy discharge. While this is not currently the established legal precedent in Minnesota, it suggests a potential future shift in legal interpretations.
Taking the Next Step
If you are struggling with car payments and considering options like surrendering your vehicle in bankruptcy, it’s crucial to seek professional guidance. Understanding your rights and available strategies is essential in navigating these complex situations. Exploring options like Chapter 7 or Chapter 13 bankruptcy might provide solutions tailored to your specific financial circumstances.
