When you finance or lease a vehicle, your creditor or lessor has important rights that end once you’ve paid off your loan or lease obligation. These rights are established by the contract you signed and the law of your state. For example, if you don’t make timely payments on the vehicle, your creditor may have the right to “repossess” — or take back your car without going to court or warning you in advance. Your creditor also may be able to sell your contract to a third party, called an assignee, who may have the same right to seize the car as the original creditor.
Consumer Counseling Centers, the nation’s most trusted credit counseling agency, wants you to know that your creditor’s rights may be limited. Some states impose rules about how your creditor may repossess the vehicle and resell it to reduce or eliminate your debt. Creditors that violate any rules may lose other rights against you, or have to pay you damages.
Seizing the Vehicle
In many states, your creditor can seize your vehicle as soon as you default on your loan or lease. Your contract should state what constitutes a default, but failure to make a payment on time is a typical example.
However, if your creditor agrees to change your payment date, the terms of your original contract may not apply any longer. If your creditor agrees to such a change, make sure you have it in writing. Oral agreements are difficult to prove.
Once you are in default, the laws of most states permit the creditor to repossess your car at any time, without notice, and to come onto your property to do so. But when seizing the vehicle, your creditor may not commit a “breach of the peace.” In some states, that means using physical force, threats of force, or even removing your car from a closed garage without your permission.
Should there be a breach of the peace in seizing your car, your creditor may be required to pay a penalty or to compensate you if any harm is done to you or your property. A breach of peace also may give you a legal defense if your creditor sues you to collect a “deficiency judgment” — that is, the difference between what you owe on the contract (plus repossession and sale expenses) and what your creditor gets from the resale of your vehicle.
Selling the Vehicle
Once your vehicle has been repossessed, your creditor may decide to either keep it as compensation for your debt or resell it in a public or private sale. In some states, your creditor must let you know what will happen to the car. For example, if the car will be sold at public auction, state law may require that the creditor tell you the time and place of the sale so that you can attend and participate in the bidding. If the vehicle will be sold privately, you may have a right to know the date of the sale.
In any of these circumstances, you may be entitled to “redeem” — or buy back — the vehicle by paying the full amount you owe (usually, that includes your past due payments and the entire remaining debt), in addition to the expenses connected with the repossession, like storage, preparation for sale, and attorney fees. Or you could try to buy back the vehicle by bidding on it at the repossession sale.
Some states have consumer protection laws that allow you to “reinstate” your loan. This means you can reclaim your car by paying the amount you are behind on your loan, together with your creditor’s repossession expenses. Of course, if you reclaim your car, your future payments must be made on time, and you must meet the terms of your reinstated contract to avoid another repossession.
Any resale of a repossessed vehicle must be conducted in a “commercially reasonable manner.” Your creditor doesn’t have to get the highest possible price for the vehicle — or even a good price. But a resale price that is below fair market value may indicate that the sale was not commercially reasonable. “Commercially reasonable” may depend on the standard sales practices in your area. A creditor’s failure to resell your car in a commercially reasonable manner may give you a claim against that creditor for damages or a defense against a deficiency judgment.
Personal Property in the Vehicle
Regardless of the method used to dispose of a repossessed car, a creditor may not keep or sell any personal property found inside. In some states, your creditor must tell you what personal items were found in your car and how you can retrieve them. Your creditor also may be required to use reasonable care to prevent anyone else from removing your property from the car. If your creditor can’t account for articles left in your vehicle, you may want to speak to an attorney about your right to compensation.
Any difference between what you owe on your contract (plus certain expenses) and what your creditor gets for reselling the vehicle is called a “deficiency.” For example, if you owe $10,000 on the car and your creditor sells it for $7,500, the deficiency is $2,500 plus any other fees you owe under the contract. Those might include fees related to the repossession and early termination of your lease or early payoff of your financing. In most states, your creditor is allowed to sue you for a deficiency judgment to collect the remaining amount owed as long as it followed the proper procedures for repossession and sale. Similarly, your creditor must pay you if there are surplus funds after the sale proceeds are applied to the outstanding contract obligation and related expenses, but this situation is less common.
You may have a legal defense against a deficiency judgment if, for example, your creditor breached the peace when seizing the vehicle, failed to sell the car in a commercially reasonable manner, or waited too long before suing you. An attorney will be able to tell you whether you have grounds to contest a deficiency judgment.
Paying the deficiency
Any difference between what you owe on your loan and what your creditor gets for reselling the vehicle is a „deficiency.“ For example, if you owed $2,500 on the car and your creditor sells it for $1,500, the deficiency is $1,000. In most states, a creditor who has followed the proper procedures for repossession and sale is allowed to sue you for a „deficiency judgment“ to collect the loan balance. Several states however, have consumer protection laws that restrict creditors from suing for a deficiency when vehicles or other similar consumer goods are involved. Your state consumer protection agency will be able to tell you whether this is true in the state where you live.
If you are sued for a deficiency judgment, you will be notified about the date of the court hearing. It may be important for you to appear at this hearing, because it may be your only opportunity to use any legal defenses you may have. If your creditor breached the peace when seizing the vehicle or failed to resell the car in a commercially reasonable manner, these may be defenses against a deficiency judgment. An attorney will be able to tell you whether you have grounds to contest a deficiency judgment.
A good way to pay back the deficiency balance is to reach a debt settlement with the creditor. Most accept less than the full amount. Ask us to negotiate a settlement for you by calling 1.888.502.3907 or we can show you how to do it yourself.
Can I get my property back?
You can „redeem“ the property by offering the creditor the entire unpaid balance on the debt, plus any expenses reasonably caused by the repossession. You must do this before the creditor has disposed of or sold the property or has signed an agreement to do so. 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?
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.
Does a bankruptcy stop a repossession?
A bankruptcy has an automatic stay to protect debtors so any collection efforts would violate the stay.
What about a „Repo“ on my credit?
Luckily for you, a Repo must be verified as 100% accurate on your credit reports. When a Repo occurs, there are many things that take place like picking up the car, storage fees, tow fees, sale fee etc. The odds that you can find a little inconsistencies in the information being reporting are pretty good. Credit repair simply means to remove that , that is inaccurate, obsolete or outdated. The creditor has to be diligent in their record keeping if they want to stand up against your inquiry to the legitimacy of the Repo being reported.
A Repo on your credit is very bad 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 FIRST before you decide to dispute it to see exactly how the Repo is being reported. Consumers DO remove repos from their credit reports everyday. It’s really just a matter of record keeping combined with using the fair credit laws to dispute it.
If you need assistance our credit counseling is free and our expert opinion is a valuable resource to help you make a smart decision. Get a second opinion! Ask us 1.888.502.3907 or contact us at www.consumercounseling.org