Vehicle Repossession
When you finance or lease a car, truck or other vehicle, your
creditor or lessor holds important rights on the vehicle until you’ve made the last
loan payment or fully paid off your leasing obligation. These rights are established by
the signed contract and by state law. For example, if your payments are late or you
default on your contract in any way, your creditor or lessor may have the right to
repossess your car. In many states, creditors or lessors can do this legally without going
to court or warning you in advance, as long as they do not breach the peace. In addition,
your creditor or lessor may be able to sell your contract to a third party, called an
assignee, who may have the same rights and responsibilities as the original creditor or lessor.
However, some state laws limit the ways a creditor or lessor can
repossess and sell a vehicle to reduce or eliminate your debt. If any rules are violated,
the creditor or lessor may be required to pay you damages.
Seizing the Car
In many states, your creditor or lessor has legal authority to seize your vehicle
as soon as you default on your loan or lease. Because state laws differ, read your
contract to find out what constitutes a default. In some states, failure to make a payment
on time or to meet your other contractual responsibilities are considered defaults.
If your creditor or lessor has agreed to change your payment date or any other
contractual obligations, it’s possible that the terms of your original contract may
no longer apply. Such a change may be made orally or in writing. It’s best to get any
changes in writing because oral agreements are difficult to prove.
If you default on your loan, the law in most states allows the creditor or lessor to
repossess your car. In some states, creditors or lessors are allowed on your property to
seize your car without letting you know in advance.
At the same time, the law usually doesn’t allow your creditor or lessor to commit
a breach of the peace in connection with repossession. In some states, removing your car
from a closed garage without your permission may constitute a breach of the peace.
Creditors or lessors who breach the peace in seizing your car may be required to
compensate you if they harm you or your property.
Selling the Car
Once your car has been repossessed, your creditor or lessor may decide to keep the
car as compensation for your debt or sell it in either a public or private sale. In some
states, your creditor or lessor must let you know what will happen to the car. For
example, if a creditor or lessor chooses to sell the car at public auction, state law may
require that the creditor or lessor tell you the date of the sale so that you can attend
and participate in the bidding. If the vehicle is to be sold privately, you may have a
right to know the date it will be sold.
In either of these circumstances, you may be entitled to buy back the vehicle by paying
the full amount you owe, plus any expenses connected with its repossession, such as
storage and preparation for sale. In some states, the law allows you to reinstate your
contract—reclaim your car by paying the amount you owe, as well as repossession and
related expenses (such as attorney fees). If you reclaim your car, you must make your
payments on time and meet the terms of your reinstated or renegotiated contract to avoid
another repossession.
The sale of a repossessed car must be conducted in a commercially reasonable
manner—according to standard custom in a particular business or an established
market. For example, the sale price might not be the highest possible price—or even
what you may consider a good price—but a sale price far below fair market value may
indicate that the sale was not commercially reasonable. Depending on state law, failure to
sell the car in a commercially reasonable manner may give you either a claim against your
creditor or lessor for damages or a defense against a deficiency judgment—a court
order mandating you to pay the debt you owe.
Regardless of the method used to dispose of a repossessed car, a creditor or lessor
usually may not keep or sell any personal property found inside. Since state laws vary,
check to see if this applies in your state. State laws also may require your creditor or
lessor to use reasonable care to prevent others from removing your property from the
repossessed car. If you find that your creditor or lessor cannot account for articles left
in your car, talk to an attorney about whether your state offers a right to compensation.
Paying the Deficiency
A deficiency is any amount you still owe on your contract after your creditor or
lessor sells the vehicle and applies the amount received to your unpaid obligation. For
example, if you owe $2,500 on the car and your creditor or lessor sells the car for
$1,500, the deficiency is $1,000 plus any other fees you owe under the contract, such as
those related to the repossession and early termination of your lease or early payoff of
your financing. In most states, a creditor or lessor who has followed the proper
procedures for repossession and sale is allowed to sue you for a deficiency judgment to
collect the remaining amount owed on your credit or lease contract.
Depending on your state’s law and other factors, if you are sued for a deficiency
judgment, you should be notified of the date of the court hearing. This may be your only
opportunity to present any legal defense. If your creditor or lessor breached the peace
when seizing the vehicle or failed to sell the car in a commercially reasonable manner,
you may have a legal defense against a deficiency judgment. An attorney will be able to
tell you whether you have grounds to contest a deficiency judgment.
Talking with Your Creditor or Lessor
It’s easier to try to prevent a vehicle repossession from taking place than to
dispute it afterward. Contact your creditor or lessor when you realize you will be late
with a payment. Many creditors or lessors will work with you if they believe you will be
able to pay soon, even if slightly late.
Sometimes you may be able to negotiate a delay in your payment or a revised schedule of
payments. If you reach an agreement to modify your original contract, get it in writing to
avoid questions later.
Still, your creditor or lessor may refuse to accept late payments or make other changes
in your contract and may demand that you return the car. By voluntarily agreeing to a
repossession, you may reduce your creditor or lessor’s expenses, which you would be
responsible for paying. Remember that even if you return the car voluntarily, you are
responsible for paying any deficiency on your credit or lease contract, and your creditor
or lessor still may enter the late payments and/or repossession on your credit report.
If you need help in dealing with your credit or lease contract, consider using a credit
counseling service. There are nonprofit organizations in every state that advise consumers
on debt management. Counselors often try to arrange a repayment plan that is acceptable to
you and your creditors. They also can help you set up a realistic budget and plan
expenditures. These counseling services are offered at little or no cost to consumers.
Check your telephone directory for the office nearest you.
In addition, universities, military bases, credit unions, and housing authorities often
operate nonprofit counseling programs. They also are likely to charge little or nothing
for their assistance. Or check with your local bank or consumer protection office to see
if it has a list of reputable, low-cost financial counseling services.
Note: For affordable legal assistance Center For Debt Management highly recommends Standard Legal's Do-It-Yourself Software Kits. For credit repair service, Lexington Law Firm
is the most trusted law firm in America, with over 15 years of experience.
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Vehicle Repossession: Seizing the Car, Paying the Deficiency
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