Auto repossession is a process that can be both confusing and stressful for vehicle owners. Understanding how it works, your rights, and the rights of your lender can help you navigate this challenging situation. In this blog post, we’ll explore the intricacies of auto repossession, including the legal processes involved and what happens after your car is repossessed.
What is Auto Repossession?
When you buy a car and borrow money, you can either lease or finance it from a bank. In this situation you are not the owner of the vehicle, your lender owns it. If you miss a payment, miss another payment, and then stop making payments your lender can take the car away from you through repossession. Auto repossession occurs due to a default on the loan agreement. In this situation typically the borrower fails to make the required payments. The lender has than the right to repossess the vehicle as a way to recover the outstanding debt.
Types of Auto Repossession?
There are 2 types of repossession: Voluntary and Involuntary. They both have the same result in that the lender after repossession sells your car at an auction and you are responsible for the deficiency balance after the vehicle sale.
Involuntary: In an involuntary repossession you won’t know when the Repo Man will show up to repossess your car. You will be charged fees by the lender and the repossession company.
Voluntary: Voluntary means you have let the lender know you can no longer make payments, and you’ve agreed to give the car back. You will also pay less in fees, including the impound lot fee and other potential costs.
Auto Repossession State Laws
Car repossession laws and regulations vary by state, and sometimes even within states. The terms of your loan, your state attorney general (or consumer advocate) webpage, or your state’s legal assistance agency should have information on your state’s specifics regulation guidelines.
Despite state differences, the federal Dodd-Frank Act prohibits service providers from committing unfair, deceptive or abusive acts or practices. What that means is you’re protected from the Repo Man if:
- Your loan is current, even if there was a prior delinquency.
- You entered into an agreement to extend the loan to avoid repossession.
- You followed instructions the company said would result in avoiding repossession.
- You have filed for bankruptcy, which brings an automatic stay to the seizure of assets.
- Your payments are being processed in a different order than what you’ve been told, resulting in the appearance of late payments.
- The lender or acting company on behalf of lender charged unlawful fees that pushed your account into default.
If in a situation when your car is repossessed:
- The lender or acting company on behalf of the lender can’t withhold personal property found in the vehicle and cannot charge an upfront fee for you to recover the property (for instance, your purse, laptop, baby seat, AR-15, tuba, French Bulldog, etc.
- The lender or acting company on behalf of the lender can’t damage your car or personal property while repossessing the vehicle.
- The lender or acting company on behalf of the lender can’t charge for collateral protection insurance after the car is repossessed.
What Are Your Rights in Auto Repossession?
As a borrower, you have certain rights during the repossession process:
- Notice Requirements: Some states require lenders to provide notice before repossessing a vehicle. Lenders would prefer not to repossess your car. It usually nets them only 30% of the loan value. But if they decide there’s no other way to resolve the situation, the Repo Man will spring into action. Always check your state’s laws where you are resident to understand your rights.
- Peaceful Repossession: The repossession must be conducted without breaching the peace. This means no threats or use of force.
- Cannot Breach the Peace: They can’t take it from your garage without your consent. And also they can’t disturb neighbors.
- Personal Property: You have the right to retrieve personal belongings from the vehicle after repossession.
What Are the Rights of Your Lender in Auto Repossession?
Lenders also have specific rights when it comes to repossessing a vehicle:
- Right to Repossess: If you default on your loan, the lender can repossess the vehicle without a court order in most states. Generally, cars are repossessed once payments are 90 days in default. If you are delinquent on your auto payment account for more than 3 months just don’t expect lenders to give you a heads-up when the Repo Man will come calling.
- Sell the Vehicle: After repossession, the lender can sell the vehicle to recover the outstanding debt. In most cases, the lender will sell your car at an auction.
- Deficiency Balance: If the sale of the vehicle doesn’t cover the full amount owed, the lender can pursue the borrower for the remaining balance which is called deficiency balance.
Situations When Repossession is Allowed
Repossession is typically allowed when:
- Missed Payments: The borrower fails to make scheduled payments to the lender. As per the loan terms of the agreement all the payments are due on time if you miss couple of them in consecutive order it is considered you are at default.
- Insurance Lapse: The borrower fails to maintain required insurance on the vehicle. Most new cars bought or leased from the dealership require you to carry full comprehensive insurance requested by the lender so that they are covered to recover damages in case of an accident or severe damage to the vehicle.
- Breach of Contract: All the terms of the financing or leasing agreement has to be followed by the borrower otherwise it is considered breach of the loan agreement terms.
Legal Process Followed by Repossessing Company
The repossessing company must follow legal procedures, which may include:
- Verification: Confirming the borrower’s default status.
- Notification: Providing any required notices to the borrower.
- Repossession: Conducting the repossession in a lawful manner.
- Sale of Vehicle: Selling the vehicle at auction or through other means.
What Happens to Your Car After Repossession?
After repossession, the lender typically sells the vehicle. The proceeds from the sale are applied to the outstanding loan balance. If the sale doesn’t cover the full amount, the borrower may be responsible for the deficiency balance.
Your Obligations to the Lender After Repossession
Even after repossession, you may still have obligations to the lender, including:
- Deficiency Balance: If your lender sells your car, the sales proceeds go toward your loan balance. In many cases, the car sells for less than you owe, so your loan is still not paid off. Amout owed is called deficiency balance. You are liable to pay this remaining balance after the vehicle is sold.
- Collection Costs: You also have to pay for costs related to repossession. Charges can include expenses for sending a repossession agent, storing the vehicle, preparing the vehicle for sale, and more. Any and all costs associated with the repossession and sale is your obligation to pay to the lender.
What Are Your Settlement Options After Repossession?
If your car has been repossessed, you may have several options:
- Redeem the Vehicle: Pay the full amount owed to get the vehicle back. This requires paying off the loan entirely (all of the past-due payments, plus the remaining loan balance) and covering all of the repossession-related costs. This option is not easy for most of the people as it requires to pay a large sum of money at once.
- Negotiate a Settlement: Work with the lender to settle the deficiency balance. One option is to get current on your past-due payments and pay repossession costs, which will get your loan reinstated.
- File for Bankruptcy: Filing bankruptcy puts an automatic hold on all court actions. With Chapter 13 bankruptcy, you can make the car part of the repayment plan you present to the court. If you file for Chapter 7 bankruptcy, the creditor is prevented from repossessing the car, but could go to court and receive an order that permits repossession.
Summary
Auto repossession is a legal process that allows lenders to recover vehicles from borrowers who default on their loans. Understanding your rights and obligations, as well as those of your lender, can help you manage the situation more effectively. If faced with repossession, explore your options and seek legal advice if necessary.
Frequently Asked Questions
Q1: Can a lender repossess my car without notice?
A1: It depends on your state’s laws. Some states require notice, while others do not.
Q2: What happens if I hide my car from repossession?
A2: Hiding your car can lead to additional legal consequences and may not prevent repossession.
Q3: Can I get my car back after repossession?
A3: Yes, you may be able to redeem your vehicle by paying the full amount owed or negotiate with the lender.
Q4: Will repossession affect my credit score?
A4: Yes, repossession can significantly impact your credit score and remain on your credit report for several years.
Q5: What should I do if I can’t afford my car payments?
A5: Contact your lender to discuss possible options, such as refinancing or modifying your loan terms.