If you fail to make your car payments or otherwise default on your loan, you risk having your car repossessed by your lender. Read on to learn more about how car repossessions work, how to avoid them, and what your options are if your car gets repossessed.
Why Is the Lender Allowed to Repossess Your Car?
When you finance or lease a car you normally give the lender a security interest in the vehicle. Every state has its own rules regarding repossession but having a security interest generally means your lender can repossess the car without notice if you default on the loan. Many things can constitute a default but the most common reasons are not making timely loan payments or not having car insurance.
How Do Car Repossessions Work?
In most states, car lenders can seize your vehicle without prior notice if you are in default. However, they cannot breach the peace while they do it. Breaching the peace usually means using or threatening to use physical force against you to take the car back. But it can also simply involve repossessing the car from your closed garage. If your lender commits a breach of the peace, you may be entitled to damages or use it to defend against a deficiency lawsuit (discussed in more detail below).
What Will the Lender Do After Repossessing Your Car?
The lender can keep the car or sell it to satisfy your loan obligation. Each state has its own rules regarding sale procedures and notice requirements. However, you usually have a right to know when and where the sale will take place. Also, your lender must sell the car in a commercially reasonable manner. This generally means the lender has to follow standard sales practices but it is not required to obtain the highest possible price. You may have a claim for damages or a defense against a deficiency if the sale was not commercially reasonable.
What Is a Deficiency Balance?
Repossession is only one of the remedies available to your lender if you default on your loan. Having your car repossessed doesn’t get you off the hook for your obligation to pay the entire balance of the loan. If the proceeds from the sale of the vehicle are not enough to cover the balance of your loan, the remaining portion is called the deficiency balance. In most states, your lender can sue you to collect this deficiency.
However, as discussed above, there are defenses to a deficiency action. The most common defenses are:
- the lender breached the peace when repossessing the car
- the lender did not sell the car in a commercially reasonable manner, or
- the lender lost the right to sue by waiting too long and letting the “statute of limitations” run.
How Can You Get Your Car Back?
You may still be able to get your car back if the lender has not sold it yet. Below, we discuss some of the options available to you for getting your car back.
Redeem the Car
Redeeming essentially means buying back the vehicle. You can generally redeem your car if you pay the lender your entire loan balance including all arrears and repossession costs. However, most people usually don’t have the money required to redeem a car.
Reinstate the Loan
Some states allow you to reinstate your loan and get the car back if you can cure all of your arrears and pay for the repossession costs. After you reinstate, you must continue to make regular payments on the loan.
Buy It Back at the Auction
If your lender sells the car at an auction, you can bid on the vehicle to try to buy it back. However, even if you buy back the car, you will still remain liable for any resulting deficiency balance.
File for Bankruptcy
If you file for bankruptcy prior to the sale, the automatic stay will prohibit the lender from selling the car without obtaining court permission. Depending on the type of bankruptcy you file, this can buy you more time to gather the necessary money to get your car back or allow you to cure your arrears through the bankruptcy.
How Can You Avoid Getting Your Car Repossessed?
If you are behind on your loan payments, the best thing to do is to communicate with your lender. Your lender may be able to offer you a solution such as a reduction in payment amount or interest rate that can help you catch up on your payments and avoid repossession.
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Bankruptcy Fequently Asked Questions
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We do not require you to bring any information, however if you are currently employed, your last two paycheck stubs could be helpful in helping you decide the best course of action.
Generally not. Once you come into the office we can run a credit report for you which should provide us with the information that we need. However, you must remember, that it will finally be your responsibility to list ALL of your creditors and debts. If you leave off or omit a creditor, that debt will not be discharged and you will ultimately be responsible for it. This is why it is so important to speak with an attorney if and when you are first considering bankruptcy.
Yes. When you file a bankruptcy, in almost every case, the bankruptcy court will issue an order to your creditors which prevents them from continuing any collection efforts against you outside of the bankruptcy court. Moreover, in almost every case, once you have filed for bankruptcy the court orders that all garnishments, home foreclosures, and car repossessions are suspended.
No. The bankruptcy courts have provided rights and exemptions for individuals so they may keep their retirement pensions and 401Ks. In fact, by filing bankruptcy an individual can actually protect their retirement better if they have not filed.