Car Repossession Laws

Because most people depend on their car to get to work, school, the grocery store, and everywhere else they must be, the prospect of losing a car to repossession is stressful. Unfortunately, repossession is guaranteed if you fall behind on your car payments. Read on to learn the ins and outs of car repossession laws.

What Is Vehicle Repossession?

If you don’t make your car payments, your auto loan lender might have the right to take your car without going to court or letting you know first. The process of taking the vehicle is called “repossession.”

How Car Repossession Works

Each state has its own set of laws and rules that govern repossession. However, the rules are similar no matter where you live.

After 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.

Usually, the lender can repossess your car as soon as you default. (Check your contract for details.) But they probably won’t. They might wait as long as 90 days or so before repossessing the vehicle.

Still, in many states, if you're in default, the lender can repossess your car at any time without giving you any notice. The repossession agent can come onto your property if the repossession can be completed without breaching the peace.

Car Repossession Laws

Car repossession laws vary from state to state. But the lender can't commit a “breach of the peace” when taking the vehicle. This usually means that the people sent by the lender to get the car can't use force against you, threaten force against you, or go into your closed garage without your permission.

For example, if your car was sitting in a parking lot and you weren't there to object, the lender would be free to repossess it without giving you any notice if there is no breach of the peace.

Military servicemembers get some additional protections against car repossession under the federal Servicemembers Civil Relief Act.

What Happens When Your Car Gets Repossessed?

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.” Precisely what constitutes a commercially reasonable manner depends on the standard sales practices in your area.

Generally, the lender doesn't have to get the 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.

How Can You Avoid Car Repossession?

You can avoid repossession by making the payments. If you can’t afford the payments, your first step should be communicating with your lender before the vehicle is repossessed.

Communicate With Your Lender

You might be able to work out a payment arrangement or another arrangement, like a payment deferral, temporary lower interest rate, adding overdue payments to the end of the loan, or a waiver of fees, that would allow you to keep the vehicle.

How to Get Your Car Back After Repossession

After a repossession, your options might include reinstating the loan or redeeming the car. In some cases, filing for bankruptcy might be a good option. Or you might be able to buy the vehicle when the lender sells it at auction.

Redeeming the Car

Also, you will usually have the right to “redeem” the car by paying the full amount you owe on the car loan plus any repossession costs, such as a storage fee or cleaning fee.

Reinstating the Loan

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 want to keep the car.

Filing for Bankruptcy

If you're facing a lot of debt and are considering bankruptcy, you might have more options to get your car back, such as filing for Chapter 13 bankruptcy or, in some cases, for Chapter 7 bankruptcy. Learn about Chapter 13 bankruptcy and repossessions.

Will I Still Owe the Lender Money After a Car Repossession?

After the lender repossesses and sells your car to a new owner, a "deficiency" is the difference between what you owe on your loan and what the lender could get by selling the car.

Example. Let’s say you owed $10,000 on your car loan and stopped making 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 can sue you for the deficiency balance to try and collect the money. However, state law provides limitations on deficiency judgments. In rare cases, you could be entitled to the surplus when the sale brings in more than you owe.

Are There Any Defenses to a Deficiency Judgment?

You might have a defense against the lender's collection of the deficiency. Some potential defenses include:

• the lender breached the peace during the repossession of your car
• the lender waited too long to sue you (this defense is called a "statute of limitations" defense), or
• the lender didn't sell the car in a commercially reasonable manner.

Talk to a Lawyer About Car Repossession

If you believe your car loan lender violated the law when repossessing your vehicle and you want the vehicle back, talk to an attorney. An attorney can raise the issue directly to the lender or help you file a lawsuit against the lender.

Also, you might want to consider talking to an attorney if the lender sues you for a deficiency after the repossession. A lawyer can raise any defenses you have in court and tell you about your options.