Update: Some states have placed restrictions on debt collection practices, collection lawsuits, post-judgment remedies, and repossessions due to the coronavirus (COVID-19) crisis. For example, certain states have temporarily prohibited creditors and debt collectors from taking specific debt collection actions, like filing (or proceeding with) a collection lawsuit, garnishing wages, seizing property, repossessing a vehicle, or freezing a bank account. To find out if your state has any restrictions on debt collection practices during this national emergency, check your state’s official website and look for orders related to the pandemic. The National Consumer Law Center (NCLC) website is also a good source of information on consumer matters, including debt collection limitations during the coronavirus outbreak.
Most people depend on their car to go to work, school, the grocery store, and just about anywhere else they have to be. Therefore, the prospect of having a car taken away (repossessed) is usually a scary one since most people would be stranded without it. But if you fall behind on your car payments, this is exactly what might happen if you are not careful. This is called car or vehicle repossession.
Read on to learn how repossessions work, how to get your car back, and what you can do to avoid them.
Each state has its own set of laws and rules that govern repossession; however the rules are similar no matter where you live. Once you finance or lease a car, your car lender has certain rights and remedies that come with the contract you sign. One remedy allows the lender to repossess your car if you default under the terms of your agreement. Your contract will specify what exactly constitutes a default but common examples include failing to make your payments or not having car insurance.
In many states, if you are in default, the lender can repossess your car without giving you any notice. However, when repossessing the car the lender cannot commit a “breach of the peace.” This usually means that the people sent by the lender to get the car cannot use force against you, threaten force against you, or go into your closed garage. But for example, if your car was sitting in a parking lot and you were not there to object, then the lender is free to repossess it without giving you any notice as long as there is no breach of the peace.
If your lender repossesses your car, it can keep it as compensation for your unpaid loan balance or sell it at a public or private sale. The lender will usually choose to sell the vehicle but it must do so in a “commercially reasonable manner.” This will depend on the standard sales practices in your area but generally does not require the lender to get highest sales price it can. In most states, you have the right to know the time and location of the sale so you can attend and participate in the bidding.
You will usually have the right to “redeem” the car by paying the full amount you owe plus any costs of repossession. In some states, you can also get your car back by “reinstating” your loan by paying off any amounts you were behind and the repossession costs. But you will still have to continue making timely regular payments in the future if you wish to keep the car.
If you're facing a lot of debt, and are considering bankruptcy, you may have more options to get your car back. See Bankruptcy and Car Repossessions.
A deficiency is the difference between what you owe on your loan and what the lender was able to get by selling the car after repossession. Let’s say you owed $10,000 on your car loan and stopped making your payments. As a result, the lender repossessed the car and sold it for $7,000. The difference of $3,000 (plus any other fees or costs associated with repossession) is your deficiency. In most states, the lender is allowed to sue you for this balance to try and collect the money.
You may have a defense against the lender's collection of the deficiency. Defenses include:
It is a good idea to talk to your lender first if you are having trouble making your payments because you may be able to work something out (like a temporary lower interest rate or tacking overdue payments onto the end of the loan repayment period) before risking repossession.