For most people, reliable transportation is key to a stable job and that means owning a car. Did you know that when you borrow money to buy a car, a lender can take the vehicle if you don’t make payments? It’s called auto repossession. Lenders in some states can take back a car without taking the borrower to court. They may not even need to warn the borrower!

Seizing the Car

If you don’t pay on your loan, your lender may have the right to take your vehicle from you.  Check your loan contract to see how loan default is defined in your case. When you are in default, most state laws let the creditor take your car at any hour of the day or night. They can do this without notice and can come onto your property to do so.

Breach of the Peace

When taking your car, your creditor can’t commit a “breach of the peace”. This means they can’t use physical force or threats of force. If your lender commits a breach of the peace, they may be penalized. If harm is done to you or your property they may have to compensate you.  A breach of peace may also result in your creditor losing the right to collect a “deficiency judgment.”

Reselling the Car

When lenders repossess vehicles, they want to get back the money they have invested in the cars. So they usually re-sell them. State laws control how they do that. The sale must be done in a “commercially reasonable manner” by law. But that doesn’t mean that your lender has to get the highest possible price (or even a good price) for the vehicle.

Buying Back the Vehicle

If your car is repossessed you may be entitled to buy it back before it goes on the auction block. Usually that means you have to pay back everything you owe, plus various fees. Some states have laws that also allow you to reinstate your loan.

Deficiency Balance

If you owe more than your car is worth, that’s a “deficiency.” For example, if you owe $2,500 on the car and your creditor sells it for $1,500, the deficiency is $1,000.  In most states, creditors can 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.

Get Help

Your creditor’s right to repossess your car has limits. If rules are violated, your creditor may lose other rights against you. They may even have to pay you damages. Repossession is a complicated and serious business. If you’re worried about repossession, contact your state’s consumer protection agency. Learn about the specific rules in your area. Or contact a private attorney to help you.

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It may be helpful to talk to a financial counselor about your options. Your call will be answered by a caring, compassionate expert who understands that financial hardships happen to good people. We will treat you with care and respect. We’re committed to your success in becoming debt-free.

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