So Your Car Got Repossessed ... Now What?
If your car is about to get repossessed, try working directly with your lender. And if your car has already been repossessed, learn your rights and don't wait to act.
In the not-too-distant past, you could solve your car repossession dilemma by appearing on the short-lived TV show game show “Repo Games.” Contestants would literally show up to their house and a tow truck was attached to their car. For every question they got wrong, the tow truck would reel in the car a little further, and for each question they got right, it would release a little.
However, since we aren’t entirely in a RoboCop-esque dark satire of our own reality just yet, the show was canceled after two seasons.
So with that gone, what options are still open to you if you’re facing repossession?
What exactly is repossession?
You probably have some sense of what repossession is and how it works. But just in case you don’t, let’s address it here.
When you buy a car or truck, it’s possible to pay for the whole thing in cash. But most people don’t do that. Instead, they take out a loan that uses the car as collateral. Collateral is an item of value that secures a loan, meaning decreased risk for the lender and a lower interest rate for the borrower.
The danger with secured loans (for the borrower at least) is that the lender gets to seize the collateral if the borrower defaults on their loan. With auto loans, this process is referred to as repossession—whereas with home mortgages, for instance, the process is called eviction.
There is another kind of loan that can result in repossession: title loans. These are a type of bad credit loan that are secured by the title to your car or truck and come with average annual interest rates of 300%. According to the Consumer Financial Protection Bureau (CFPB), one in five title loans ends with the borrower’s vehicle being repossessed.
Don’t wait to act.
If you know you’re likely to miss a payment, don’t just wait until the tow truck shows up at your door. There are actions you can take immediately.
“Try to work with the lender,” advised consumer protection attorney Donald E. Petersen. “Many will understand temporary setbacks and allow borrowers a brief period of time to bring their payments current.
“Most lenders do not want to repossess the vehicle, go to the expense of having it auctioned, and attempting to collect the deficiency balance.”
However, not all lenders will be as patient, as Petersen explained to us:
“Some will repossess on a hair trigger if the borrower is approaching the final payments because they want the equity in the car. This type of predatory behavior is more common among ‘buy here, pay here’ car lots and some deep subprime lenders.”
Know your rights.
Other than some sort of device that makes your car invisible, knowledge is your best weapon against repossession.
“Each state has unique laws regarding automotive financing originated by car dealers,” nationally recognized repo expert Ken Jarman told us. “You can usually find these rights in your state’s automotive retail installment sales acts.
“In many cases, creditors have many more obligations and/or restrictions in these types of transactions. Many require notice prior to repossession. The important thing to know is that with a retail installment sale, the related state regulatory agency can be a good resource to resolve disputes with the creditor or will help you understand your rights better.”
As Jarman points out, once you have more knowledge of the law, you can protect yourself from a creditor who is trying to repossess your property without going through the proper processes. Attorney and consumer advocate Alexis Moore echoed this advice:
“Credit Agencies break the law all the time, so it’s up to the consumer to be able to realize that they should fight back and do some research right away, because there is a time for which one can file any sort of claim.”
So what kind of rules might the creditor be breaking? Here are a couple examples Petersen offered:
“The lender is required to mail the borrower a pre-sale notice describing the method of sale, of the collateral, etc. (the ‘Pre-Sale Notice’). For example, lenders are required to inform borrowers whether they will be selling the vehicle at a public or private sale. This allows the borrower to attend any public sale to observe how it is conducted.
“Lenders are also required to mail the borrower a Post Sale Notice showing the amount received from the sale and how the lender allocated the proceeds. In a substantial minority of the states, defects in the Pre-Sale Notice may provide the borrower a complete defense if the lender (or a debt buyer) sue the borrower attempting to collect the deficiency balance.”
All in the timing?
As we said earlier, repossession is not a time to procrastinate. Because if you don’t act quickly, it can become too late to act.
“If you are behind on your payments when the lender regains possession of the vehicle, it’s too late under *most* state’s laws,” warned Petersen. “In the majority of states, if the lender executes a valid repossession before the debtor files a Chapter 13 (‘Wage Earner’) bankruptcy, the court can not force the lender to restore possession of the car to the borrower.
“Consumers who are being sued for a repossession deficiency should contact an experienced consumer lawyer. Repossession notices and sales are subject to many strict requirements and lenders frequently fail to comply.”
Of course, one of the best defenses against repossession is to avoid taking out a loan that you’ll struggle to pay back. But if you already have such a loan, you should know what your options are.
Ken Jarman grew up in Miami, Houston, and Latin America before moving to Austin, Texas in 1991. In 2005, he realized a lifelong dream and opened his own car dealership and auto finance company. For 10 years he was an active member of the Texas Independent Automobile Association and has decades of experience in managing operations in automotive financial services. In 2015 he sold his automotive companies and became a consumer consultant. He is passionate about educating consumers and is the founder of Real Credit Repair in San Antonio, TX.
Alexis Moore spent two decades as a high-tech investigator locating assets for banks and law firms. Along the way she became an attorney and a consumer advocate, recognizing that many credit collection agencies and banks take advantage of vulnerable consumers, including the credit bureaus. She is now a passionate Advocate for others.
Donald E. Petersen is an Orlando, Florida trial lawyer who represents consumers against companies who violate their rights under the Telephone Consumer Protection Act, Fair Debt Collection Practices Act, Fair Credit Reporting Act and other consumer protection laws.
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